Higher interest rates and, therefore, a decrease in investment spending is most likely to be caused by which policy mix?
A)deficit reduction and expansionary monetary policy
B)larger deficits and contractionary monetary policy
C)larger deficits and expansionary monetary policy
D)deficit reduction and contractionary monetary policy

Question

Higher interest rates and, therefore, a decrease in investment spending is most likely to be caused by which policy mix?
A)deficit reduction and expansionary monetary policy 
B)larger deficits and contractionary monetary policy 
C)larger deficits and expansionary monetary policy 
D)deficit reduction and contractionary monetary policy

Quizplus · Accepted Answer

Larger deficits can lead to higher interest rates as the government borrows more, and contractionary monetary policy involves raising interest rates to reduce inflation, both leading to decreased investment spending.

Higher Interest Rates And, Therefore, a Decrease in Investment Spending