A decrease in government spending

a. decreases the interest rate and so investment spending increases.

b. decreases the interest rate and so investment spending decreases.

c. increases the interest rate and so investment spending increases.

d. increases the interest rate and so decreases investment spending decreases.

Question

Dutchess

Business

15 December, 16:53

A decrease in government spending

a. decreases the interest rate and so investment spending increases.

b. decreases the interest rate and so investment spending decreases.

c. increases the interest rate and so investment spending increases.

d. increases the interest rate and so decreases investment spending decreases.

+2

Answers (1)

Know the Answer?

Lena Kerr · Answer 1

a. decreases the interest rate and so investment spending increases.

Explanation:

An increase in government spending has a crowd-out effect on the economy as interest rate rises since government borrows more than many businesses in terms of size and volume. The opposite effect results when government spending decreases.