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When households increase consumption immediately after interest rates increase, this O A. enhances the effectiveness of monet

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Ans: c) will reduce the effectiveness of monetary policy.

Explanation:

When interest rate increases then consumption and investment expenditure will decrease. Under contractionary monetary policy , interest rate increases to reduce consumption and investment expenditure and also money supply in the economy. But in the above given scenario , households consumption increases with an increase in interest rate. So we can conclude that , this  will reduce the effectiveness of monetary policy.

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