According to the traditional interest-rate channel, expansionary monetary policy lowers the real interest rate, thereby raising expenditure on ________.
A) business investment decisions
B) government expenditure
C) consumer nondurables
D) net exports

Question

Quizplus · Accepted Answer

The traditional interest-rate channel suggests that when monetary policy is expansionary and central banks lower interest rates, it makes borrowing cheaper for businesses wanting to invest, leading to an increase in business investment. Therefore, choice A, business investment decisions, is the correct answer.

According to the Traditional Interest-Rate Channel, Expansionary Monetary Policy Lowers