The correct chain of causation illustrating the changes caused by monetary policy is
A)money, interest rates, C + I + G + (X − IM), I.
B)money, interest rates, I, C + I + G + (X − IM).
C)C + I + G + (X − IM), I, interest rates, money.
D)I, C + I + G + (X − IM), money, interest rates.

Question

Quizplus · Accepted Answer

The correct chain of causation for changes caused by monetary policy starts with changes in the money supply, which leads to changes in interest rates. This affects investment (I) which then leads to changes in consumption (C), government spending (G), and net exports (X-IM). Therefore, the correct chain of causation is money, interest rates, I, C + I + G + (X − IM). Option B correctly reflects this chain of causation.

The Correct Chain of Causation Illustrating the Changes Caused by Monetary