Which of the following is an effect of an increase in government purchases?
A)It decreases interest rates.
B)It results in a net decrease in aggregate demand.
C)It crowds out investment spending by business.
D)It decreases money demand.

Question

Quizplus · Accepted Answer

An increase in government purchases leads to an increase in aggregate demand. This increase in demand can lead to higher interest rates and crowding out of investment spending by business as the government competes for available resources. It does not decrease interest rates or money demand, so options A and D are incorrect. Option B is also incorrect as an increase in government purchases would result in a net increase, not decrease, of aggregate demand.

Which of the Following Is an Effect of an Increase