An increase in government purchases is likely to
A)decrease interest rates.
B)result in a net decrease in aggregate demand.
C)crowd out investment spending by business.
D)decrease money demand.

Question

Quizplus · Accepted Answer

The increase in government purchases would likely increase demand for goods and services, resulting in an increase in prices and possibly inflation. This may cause an increase in interest rates and could crowd out investment spending by businesses as borrowing becomes more expensive. Additionally, an increase in government purchases would lead to an increase in government borrowing, which would increase money demand, not decrease it.

An Increase in Government Purchases Is Likely to