An increase in government purchases is likely to
A)decrease interest rates.
B)result in a net decrease in aggregate demand.
C)crowd out investment spending by business firms.
D)decrease money demand.

Question

Quizplus · Accepted Answer

An increase in government purchases will increase aggregate demand, which may lead to higher interest rates due to increased demand for loanable funds. This may crowd out investment spending by business firms as they face higher borrowing costs.

An Increase in Government Purchases Is Likely to