Which of the following raises the interest rate?
A)an increase in government expenditures and an increase in the money supply
B)an increase in government expenditures and a decrease in the money supply
C)a decrease in government expenditures and an increase in the money supply
D)a decrease in government expenditures and a decrease in the money supply

Question

Quizplus · Accepted Answer

An increase in government expenditures leads to an increase in the demand for goods and services, which puts upward pressure on prices. To combat inflation resulting from an increase in government expenditure, the central bank may decrease the money supply, which increases the interest rate.

Which of the Following Raises the Interest Rate