If the central bank increases the money supply at the same time as the government increasing spending, it is suggested that investment will ?
Correct answer: B. not be reduced as much as it would have been
- A. Suffer even more
- B. not be reduced as much as it would have been
- C. be replaced by foreign investment
- D. be replaced by consumer spending
Explanation
Higher government spending raises interest rates and can crowd out private investment, but a simultaneous monetary expansion shifts LM right and lowers that interest-rate pressure. Investment is therefore not reduced as much as it otherwise would be.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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