According to the interest-rate-based monetary policy transmission mechanism, an increase in the money supply will

Question

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According to the interest-rate-based monetary policy transmission mechanism, an increase in the money supply leads to a decrease in interest rates. Lower interest rates lead to an increase in investment spending, which in turn leads to an increase in real GDP. This is because lower interest rates make borrowing cheaper and therefore more attractive to businesses that want to invest in new projects or technology. The increase in investment spending leads to a multiplier effect, as the initial increase in spending leads to a subsequent increase in income, which leads to further increases in spending. This creates a positive cycle of economic growth, which is greater than the initial increase in investment spending. Therefore, the correct answer is D: an increase in investment spending and an increase in real GDP which is greater than the increase in investment spending.

According to the Interest-Rate-Based Monetary Policy Transmission Mechanism, an Increase