If the government wants to raise investment but keep output constant, it should:
A) adopt a loose monetary policy but keep fiscal policy unchanged.
B) adopt a loose monetary policy and a loose fiscal policy.
C) adopt a loose monetary policy and a tight fiscal policy.
D) keep monetary policy unchanged but adopt a tight fiscal policy.

Question

Quizplus · Accepted Answer

Adopting a loose monetary policy would make borrowing cheaper and increase investment, but it can also lead to inflation and a decrease in the value of the currency. Therefore, a tight fiscal policy (reducing government spending and raising taxes) would balance out the effects of loose monetary policy, keeping output constant while raising investment.

If the Government Wants to Raise Investment but Keep Output