In a closed economy, an expansionary monetary policy causes:
A) interest rates to rise and aggregate demand to increase.
B) interest rates to fall and aggregate demand to decrease.
C) interest rates to rise and aggregate demand to decrease.
D) interest rates to fall and aggregate demand to increase.
E) no change in interest rates or aggregate demand.

Question

Quizplus · Accepted Answer

In a closed economy, an expansionary monetary policy typically involves the central bank increasing the money supply, which leads to lower interest rates. Lower interest rates make borrowing cheaper, encouraging investment and consumption, which in turn increases aggregate demand.

In a Closed Economy, an Expansionary Monetary Policy Causes