Question:
The Transmission Mechanism process follow different stages: A. Change in real money supply, B. Spending adjusts to change in interest rate, C. Portfolio adjustment, D. Output adjusts to the change in aggregate demand, E. Change in asset price and interest rate.
The Transmission Mechanism process follow different stages: A. Change in real money supply, B. Spending adjusts to change in interest rate, C. Portfolio adjustment, D. Output adjusts to the change in aggregate demand, E. Change in asset price and interest rate.
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Monetary transmission works through money supply, portfolio adjustment, interest rate changes, spending changes, and output adjustment.
Updated On: May 22, 2026
- A, B, C, D, E
- A, C, E, B, D
- B, C, A, E, D
- E, B, C, D, A
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The Correct Option is B
Solution and Explanation
Concept: Monetary transmission mechanism explains how changes in money supply affect interest rate, spending, aggregate demand and output.
Step 1: Start with change in real money supply.
The process begins when real money supply changes. \[ A = \text{Change in real money supply} \]
Step 2: Portfolio adjustment takes place.
People adjust their portfolio between money, bonds and other assets. \[ C = \text{Portfolio adjustment} \]
Step 3: Asset price and interest rate change.
Portfolio changes affect asset prices and interest rates. \[ E = \text{Change in asset price and interest rate} \]
Step 4: Spending adjusts.
Investment and consumption spending respond to interest rate changes. \[ B = \text{Spending adjustment} \]
Step 5: Output adjusts.
Finally, aggregate demand changes and output adjusts. \[ D = \text{Output adjustment} \] Therefore, the correct sequence is: \[ A, C, E, B, D \]
Step 1: Start with change in real money supply.
The process begins when real money supply changes. \[ A = \text{Change in real money supply} \]
Step 2: Portfolio adjustment takes place.
People adjust their portfolio between money, bonds and other assets. \[ C = \text{Portfolio adjustment} \]
Step 3: Asset price and interest rate change.
Portfolio changes affect asset prices and interest rates. \[ E = \text{Change in asset price and interest rate} \]
Step 4: Spending adjusts.
Investment and consumption spending respond to interest rate changes. \[ B = \text{Spending adjustment} \]
Step 5: Output adjusts.
Finally, aggregate demand changes and output adjusts. \[ D = \text{Output adjustment} \] Therefore, the correct sequence is: \[ A, C, E, B, D \]
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