Question:
Monetary policy affects aggregate demand through changes in
(1) direct and indirect tax receipts.
(2) share prices.
(3) export demand.
(4) consumption and investment spending.
(5) government spending.
Correct Answer:
(4)
Answer Explanation:
Monetary policy works primarily by manipulating interest rates. Changes in interest rates alter the cost of borrowing and the reward for saving, which directly influences the level of private Consumption (C) and business Investment (I) spending, thereby shifting Aggregate Demand.
Topic: Monetary Policy Year: 2020
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