Which of the following best describes the process (in order) of how monetary policy effects the...

Which of the following best describes the process (in order) of how monetary policy effects the macroeconomy?

A. The 3 players have to cooperate, the aggregate demand changes, interest rate change, investment and consumption change and then the money supply changes.

B. The 3 players have to cooperate, the money supply changes, interest rate change, investment and consumption change, and then the aggregate demand changes.

C. They 3 players have to cooperate, interest rate change, the money supply changes, investment and consumption change and then the aggregate demand changes.

D. The money supply changes, interest rate changes, investment and consumption change, the aggregate demand changes, and then the 3 players have to cooperate.

Solutions

Expert Solution

With the use of monetary policy the repo rate changes thus there will change in lending interest rates of banks. This change in interest rates effects the change in money supply in the economy. This money supply further changes the investment and consumption thus changing the aggregate demand. This is the process in which monetary policy effect the macro economics.

Option C.

Rahul Sunny answered 1 year ago

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