if government spending and the price level increase,then
A)the interest rate increases,consumption declines,and investment spending declines.
B)the interest rate decreases,consumption declines,and investment spending declines.
C)the interest rate increases,consumption increases,and investment spending increases.
D)the interest rate decreases,consumption increases,and investment spending increases.

Question

Quizplus · Accepted Answer

When government spending and the price level increase, it leads to an increase in aggregate demand. This increase in aggregate demand leads to an increase in the demand for money, which in turn increases the interest rate. The increase in interest rates leads to a decrease in investment spending and consumption as they become more expensive. Therefore, choice A is the correct answer as it depicts the correct relationship between government spending, price level, interest rates, consumption, and investment spending.

If Government Spending and the Price Level Increase,then