Suppose the government want to increase aggregate demand without increasing interest rates.You would recommend
A)reducing transfer payments and increasing the money supply.
B)increasing government spending and reducing the money supply.
C)increasing taxes and the money supply.
D)increasing government spending and the money supply.

Question

Quizplus · Accepted Answer

Increasing government spending and the money supply would increase aggregate demand without increasing interest rates. This is because government spending directly injects money into the economy and increases aggregate demand, while increasing the money supply provides more liquidity in the economy and encourages more spending. Option A is incorrect because reducing transfer payments would decrease household income and demand, while increasing the money supply would decrease interest rates, potentially leading to inflation. Option B is incorrect because reducing the money supply would decrease liquidity in the economy and reduce spending, while increasing government spending without increasing the money supply would put pressure on interest rates. Option C is incorrect because increasing taxes would decrease household income and demand, while increasing the money supply would decrease interest rates, potentially leading to inflation.

Suppose the Government Want to Increase Aggregate Demand Without Increasing