Your roommate is having trouble grasping how monetary policy works.Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply
A)lowers the interest rate,and firms increase investment spending.
B)causes people to spend more because they know prices will rise in the future.
C)raises the interest rate and consumers decrease spending on durable goods.
D)lowers the interest rate,raises the value of the dollar,lowers the prices of exports,and raises net exports.

Question

Quizplus · Accepted Answer

Increasing the money supply leads to a decrease in interest rates, which in turn leads to an increase in investment spending as firms find it cheaper to borrow money to invest in their businesses.

Your Roommate Is Having Trouble Grasping How Monetary Policy Works