Suppose there is a fiscal expansion and the central bank controls the interest rate. Which of the following is a complete list of the variables that must increase as a result of the fiscal expansion?

Question

Quizplus · Accepted Answer

Fiscal expansion increases government spending, which increases aggregate demand. This leads to an increase in output and consumption. Investment also increases as firms anticipate higher demand for their products. The interest rate may increase or decrease depending on the monetary policy stance of the central bank.

Suppose There Is a Fiscal Expansion and the Central Bank