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

Question

Quizplus · Accepted Answer

An increase in government purchases means the government is spending more, which can increase overall demand in the economy. This can lead to higher interest rates as businesses and individuals compete for a limited supply of loanable funds. As a result, investment spending by businesses may be crowded out.

What Is an Effect of an Increase in Government Purchases