A decrease in government purchases, other things being equal, will tend to _____.
A)increase interest rates and consequently decrease private investment
B)increase interest rates and consequently increase private consumption
C)decrease interest rates and consequently decrease private investment
D)decrease interest rates and consequently increase private investment
E)decrease interest rates and consequently decrease private consumption

Question

Quizplus · Accepted Answer

A decrease in government purchases reduces the demand for loanable funds, leading to lower interest rates. Lower interest rates make borrowing cheaper, encouraging more private investment.

A Decrease in Government Purchases, Other Things Being Equal, Will