If the level of government spending increases at the same time the Fed is pursuing contractionary monetary policy, we know that
A)incomes will fall.
B)the interest rate will rise.
C)incomes will rise.
D)the interest rate will fall.

Question

Quizplus · Accepted Answer

If the level of government spending increases while the Fed is pursuing contractionary monetary policy, it means that the government is injecting more money into the economy while the Fed is trying to take money out of the economy. This will lead to increased demand for goods and services, which will lead to inflationary pressure. In order to counter this, the Fed will raise interest rates, which will make borrowing more expensive and slow down economic growth. Therefore, the interest rate will rise.

If the Level of Government Spending Increases at the Same