Which one of the following statements best describes the monetary transmission mechanism?
A) An increase in government spending causes the AE curve to shift upwards, leading to a higher GDP.
B) A decrease in the money supply leads to a lower interest rate, higher investment, an upward shift in the AE curve and a higher GDP.
C) An increase in the money supply leads to a lower interest rate, higher investment, an upward shift in the AE curve and a higher GDP.
D) A decrease in imports causes the AE curve to shift upwards, leading to a higher interest rate.
E) An increase in personal consumption leads to an upward shift in the AE curve and thereby increases real GDP.
Correct Answer:
Verified
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