One of the transmission mechanisms of monetary policy is through consumer demand when interest rates ________ household wealth ________ and consumption _________?
Correct answer: D. rise, falls, falls
- A. rise; increase, increase
- B. rise, falls, increase
- C. rise, increase, falls
- D. rise, falls, falls
Explanation
Higher interest rates can reduce the market value of interest-sensitive assets and household wealth, while also making borrowing more costly. The resulting fall in wealth and spending gives the sequence rise, falls, falls.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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