Which of the following refers to the interest- rate transmission mechanism?
A) A rise in aggregate demand causes a rise in the money supply and hence a fall in the rate of interest.
B) A rise in the money supply causes a rise in aggregate demand and hence a rise in the demand for money and a rise in interest rates.
C) A rise in the money supply causes a fall in interest rates and hence a rise in aggregate demand.
D) A rise in interest rates causes a fall in money supply and hence a fall in inflation.
Correct Answer:
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