Which of the Following Best Describes the Cause-Effect Chain of an Expansionary

question 378

Multiple Choice

Which of the following best describes the cause-effect chain of an expansionary monetary policy?

• A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
• B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
• C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
• D) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.

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Definitions:

Opportunity Cost

The financial consequence of skipping the immediate secondary choice while deciding.

Perpetuity

A financial instrument that pays a constant annual amount indefinitely, often used in valuing financial assets.

Annual Income

Annual income is the total amount of money earned over a year from employment, investments, or business operations.

Compounded Monthly

The process of calculating interest on both the initial principal and the accumulated interest from previous periods, with the compounding occurring on a monthly basis.