Keynesians believe that the difference between using an increase in the money supply compared with an increase in government spending to increase aggregate demand in the event of a recession is that if government spending is increased,________ will be ________ than if the money supply is increased.
A)real interest rate; higher
B)real interest rate; lower
C)the price level; lower
D)the price level; higher

Question

Quizplus · Accepted Answer

Keynesians believe that an increase in government spending will lead to a lower real interest rate than an increase in the money supply. This is because an increase in government spending will increase the demand for loanable funds, which will drive up the interest rate. An increase in the money supply, on the other hand, will increase the supply of loanable funds, which will drive down the interest rate.

Keynesians Believe That the Difference Between Using an Increase in the Money