Which of the following best describes the cause-effect chain of expansionary monetary policy?

Question

Multiple Choice
lower interest rates will decrease investment spending, and decrease aggregate demand and real GDP.
higher interest rates will decrease investment spending, and decrease aggregate demand and real GDP.
higher interest rates will increase investment spending, and increase aggregate demand and real GDP.
lower interest rates will increase investment spending, and increase aggregate demand and real GDP.

Answer 1

The option that best describes the cause-effect chain of expansionary monetary policy is:

lower interest rates will increase investment spending, and increase aggregate demand and real GDP.

Expansionary monetary policy typically involves lowering interest rates, which makes borrowing cheaper for businesses and consumers. This tends to increase investment spending, leading to higher aggregate demand and ultimately contributing to an increase in real GDP.