The interest-rate-based approach to the monetary policy transmission mechanism says that a change in the money...
The interest-rate-based approach to the monetary policy transmission mechanism says that a change in the money supply influences aggregate demand by
A: a change in interest rates, which changes investment.
B: a change in interest rates, which changes the money supply.
C: changing consumer consumption behavior as they adjust to a change in the number of dollars available.
D: leading to shifts of the short-run aggregate supply curve.
Homework Answers
A change in money supply influence the interest rate in money market ( equilibrium interest rate occurs at the intersection of money supply and money demand).
A change in interest rate influence the level of investment in goods market (investment is negatively related with interest rate)
A change in investment influence the aggregate demand.
Thus, a change in the money supply influence aggregate demand by a change in interest rate, which changes investment.
Answer: option (a).
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