If restrictive fiscal policy is combined with expansionary monetary policy to reduce interest rates without changing income, then

Question

Quizplus · Accepted Answer

Restrictive fiscal policy typically reduces income, which can decrease the demand for money. However, expansionary monetary policy aims to lower interest rates, potentially increasing money demand. If income remains unchanged, the velocity of money should decrease as people hold onto money longer due to lower interest rates.

If Restrictive Fiscal Policy Is Combined with Expansionary Monetary Policy