Consider a continuously increasing level of government spending (G) without any corresponding increase in taxes. The increases in G keep shifting the AD curve to the right, which leads to an increasing price level (P). (You may find it useful to draw a graph now.) With a fixed money supply, the increases in P lead to a higher and higher interest rate. Why is there a limit to how far this can go?

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The Answer of Consider a continuously increasing level of government spending (G) without any corresponding increase in taxes. The increases in G keep shifting the AD curve to the right, which leads to an increasing price level (P). (You may find it useful to draw a graph now.) With a fixed money supply, the increases in P lead to a higher and higher interest rate. Why is there a limit to how far this can go?

Consider a Continuously Increasing Level of Government Spending (G) Without