From a monetarist perspective, an expansionary fiscal policy's effect on aggregate demand would be offset by
A)the buying of government securities by the Treasury.
B)the selling of government securities by the Treasury.
C)a cut in the Federal funds rate.
D)a cut in the discount rate.

Question

Quizplus · Accepted Answer

Monetarists believe that an increase in government spending (expansionary fiscal policy) would lead to higher interest rates, which would crowd out private investment. The selling of government securities by the Treasury would absorb liquidity from the market, leading to higher interest rates, thus offsetting the increase in aggregate demand.

From a Monetarist Perspective, an Expansionary Fiscal Policy's Effect on Aggregate