Figure 34-2

-In Figure 34-2,which of the following sequences shows the logic of the interest rate effect?
A)1, 2, 3, 4
B)1, 4, 3, 2
C)3, 4, 2, 1
D)3, 2, 1, 4

Question

Figure 34-2
 
-In Figure 34-2,which of the following sequences shows the logic of the interest rate effect?
A)1, 2, 3, 4 
B)1, 4, 3, 2 
C)3, 4, 2, 1 
D)3, 2, 1, 4

Quizplus · Accepted Answer

The interest rate effect is shown as follows: 
1. Increase in money supply causes lower interest rates 
2. Lower interest rates cause an increase in investment 
3. Increase in investment causes an increase in aggregate demand 
4. Increase in aggregate demand causes an increase in real GDP and price level. Option D shows this sequence in the correct order.

Figure 34-2 -In Figure 34-2,which of the Following Sequences Shows the Logic