Suppose the central bank of a country undertakes an expansionary monetary policy. Which of the following is most likely to be the effect of such a policy, all other things remaining unchanged?
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An increase in the price level that reduces the real value of households’ money holdings and stimulates consumer spending
An increase in the price level that stimulates spending on net exports and increases the demand for money
A decrease in the price level that reduces the amount of money that people want to hold and decreases the interest rate.
A decrease in the price level that reduces the interest rate and lowers the real value of the domestic currency foreign-exchange market.