A country engages in a contractionary monetary policy that causes its income to decline and its interest rate to rise. This causes investors from other countries to increase their financial investments in that country, causing the interest rate in the investors' countries to rise.In this case, the business cycle is being transmitted internationally through ____ effect.

Question

Quizplus · Accepted Answer

The business cycle is being transmitted internationally through an interest-rate effect, as the initial rise in interest rates in one country attracts foreign investment, leading to a rise in interest rates in the investors' countries as well.

A Country Engages in a Contractionary Monetary Policy That Causes