Consider an economy experiencing a recession. The central bank decides to implement an expansionary monetary policy. Using the IS-LM framework, which of the following sequences correctly describes the impact on the economy?
1
Decrease in money supply → Increase in interest rates → Decrease in investment → Decrease in output.
2
Increase in money supply → Decrease in interest rates → Increase in investment → Increase in output.
3
Increase in money supply → Increase in interest rates → Increase in investment → Decrease in output.
4
Decrease in money supply → Decrease in interest rates → Increase in investment → Increase in output.
5
Increase in money supply → Decrease in interest rates → Decrease in investment → Increase in output.