The Interest-Rate-Based Transmission Mechanism for Monetary Policy in the Keynesian

question 257

Multiple Choice

The interest-rate-based transmission mechanism for monetary policy in the Keynesian system indicates that

• A) increases in the money supply lead to decreases in the interest rate, which decreases investment, which decreases the level of real GDP.
• B) decreases in the money supply lead to increases in the interest rate, which increases investment, which increases the level of real GDP.
• C) increases in the money supply cause people to spend more, leading to increases in real GDP.
• D) increases in the money supply lead to decreases in the interest rate, which increases investment, which increases the level of real GDP.