Which of the following statements best describes the cause-and-effect chain of an expansionary monetary policy?
A)A decrease in the money supply will lower the interest rate, increase aggregate demand, and increase real output.
B)A decrease in the money supply will raise the interest rate, decrease aggregate demand, and decrease real output.
C)An increase in the money supply will raise the interest rate, decrease aggregate demand, and decrease real output.
D)An increase in the money supply will lower the interest rate, decrease aggregate demand, and increase real output.
E)An increase in the money supply will lower the interest rate, increase aggregate demand, and increase real output.

Question

Quizplus · Accepted Answer

An expansionary monetary policy involves an increase in the money supply, which is usually done by the central bank. This increase in the money supply leads to a decrease in interest rates because there is more money available for lending. This, in turn, leads to an increase in borrowing and spending by businesses and consumers, which increases aggregate demand. The increase in aggregate demand leads to an increase in real output and employment, as businesses hire more workers and increase production to meet the increased demand.

Which of the Following Statements Best Describes the Cause-And-Effect Chain