A rise in government expenditure __________ the natural rate of interest.

Question

Quizplus · Accepted Answer

An increase in government expenditure is likely to lead to higher demand for goods and services, which can put upward pressure on prices. This, in turn, can lead to higher inflation expectations, causing lenders to demand higher interest rates to compensate for the eroding value of their money. As a result, the natural rate of interest is likely to rise.

A Rise in Government Expenditure __________ the Natural Rate of Interest