Which Statement Correctly Describes the Sequence That Explains How a Contractionary

Multiple Choice

Which statement correctly describes the sequence that explains how a contractionary monetary policy impacts an economy?

A) The policy lowers interest rates; lower interest rates increase investment; and higher investment increases aggregate demand, which impacts output and the price level.
B) The policy lowers interest rates; lower interest rates discourage investment; and lower investment decreases aggregate demand, which impacts output and the price level.
C) The policy raises interest rates; higher interest rates reduce spending; and lower spending reduces aggregate demand, which impacts output and the price level.
D) The policy raises interest rates; higher interest rates attract more savings; and higher savings fuels investment growth which raises aggregate demand, which impacts output and the price level.