Which of the following best describes the cause-effect chain of a restrictive monetary policy?
A)A decrease in the money supply will lower the interest rate, increase investment spending, and increase GDP.
B)A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease GDP.
C)An increase in the money supply will raise the interest rate, decrease investment spending, and decrease GDP.
D)An increase in the money supply will lower the interest rate, decrease investment spending, and increase GDP.

Question

Quizplus · Accepted Answer

A restrictive monetary policy involves the Federal Reserve decreasing the money supply, which causes interest rates to rise due to decreased availability of funds. Higher interest rates discourage investment spending and consumption, leading to a decrease in GDP. Therefore, option B best describes the cause-effect chain of a restrictive monetary policy.

Which of the Following Best Describes the Cause-Effect Chain of a Restrictive