Which of the following is a series of events that accurately describes the steps by which restrictive monetary policy is effective?
A)Decrease in interest rate,decrease in M1,and increase in investment.
B)Decrease in M1,increase in interest rate,and decrease in investment.
C)Increase in M1,decrease in investment,and decrease in interest rate.

Question

Quizplus · Accepted Answer

When implementing restrictive monetary policy, the central bank aims to decrease the money supply (M1) in the economy. This is achieved by increasing the interest rate, which reduces borrowing and spending by consumers and businesses. As a result, investment decreases as it becomes more expensive to borrow money, leading to a decrease in aggregate demand and slowing down inflation. Therefore, the correct sequence of events is a decrease in M1, followed by an increase in interest rates, and finally, a decrease in investment.

Which of the Following Is a Series of Events That