The short-run effect of lowering the overnight loans rate is that the
A)price level rises and real GDP increases.
B)price level rises and real GDP decreases.
C)price level lowers and real GDP increases.
D)price level lowers and real GDP decreases.
E)none of the above

Question

Quizplus · Accepted Answer

Lowering the overnight loans rate increases bank reserves and reduces the cost of borrowing, which leads to increased investment and consumption spending. This stimulates aggregate demand, causing an increase in both the price level and real GDP in the short run.

The Short-Run Effect of Lowering the Overnight Loans Rate Is