Refer to the information provided in Figure 11.5 below to answer the questions that follow. Figure 11.5
-Refer to Figure 11.5. Which of the following combinations would definitely increase the equilibrium interest rate?
A) government spending increases and the price level increases
B) government spending increases and the price level decreases
C) government spending decreases and the price level increases
D) government spending decreases and the price level decreases

Question

Refer to the information provided in Figure 11.5 below to answer the questions that follow.  Figure 11.5
-Refer to Figure 11.5. Which of the following combinations would definitely increase the equilibrium interest rate?
A) government spending increases and the price level increases 
B) government spending increases and the price level decreases 
C) government spending decreases and the price level increases 
D) government spending decreases and the price level decreases

Quizplus · Accepted Answer

An increase in government spending would shift the demand for loanable funds to the right, leading to a higher equilibrium interest rate. Additionally, an increase in price level would increase demand for loanable funds and shift the curve to the right as well, raising the equilibrium interest rate further. Therefore, A is the correct choice as it contains both of these factors.

Refer to the Information Provided in Figure 11