As part of the "wealth channel of monetary policy," a lower money supply __________ bond prices and thus __________ spending.
A) raises; raises consumption
B) raises; raises investment
C) lowers; lowers consumption
D) lowers; lowers investment

Question

Quizplus · Accepted Answer

A lower money supply decreases the amount of money available to invest, which increases the interest rates on loans. This makes it more expensive for consumers to borrow money, which in turn lowers consumption. Lower bond prices may also be a consequence, but this is not a direct effect of the wealth channel of monetary policy.

As Part of the "Wealth Channel of Monetary Policy," a Lower