Which of the following correctly indicates a potential path for the transmission of expansionary monetary policy to the goods and services market?
A) Higher real interest rates will lead to a decrease in both business investment and consumer purchases of durable items, causing a decrease in aggregate demand.
B) Lower interest rates lead to a depreciation in the foreign exchange value of the dollar, an increase in net exports, and an expansion in aggregate demand.
C) Higher interest rates will tend to increase asset prices, leading to a decrease in wealth that will decrease consumer spending and aggregate demand.
D) A reduction in the general level of prices will increase the disposable income of households and aggregate demand.

Question

Quizplus · Accepted Answer

Lower interest rates typically lead to a depreciation in the foreign exchange value of the country's currency. This makes exports more competitive, leading to an increase in net exports and boosting aggregate demand. This is how expansionary monetary policy can transmit to the goods and services market.

Which of the Following Correctly Indicates a Potential Path for the Transmission