Assume we combine restrictive monetary policy with expansionary fiscal policy.Which is most likely to occur?
A)unemployment and interest rates will both go down
B)unemployment will go down but interest rates will stay the same
C)investment and consumption will both increase
D)interest rates and the budget deficit will both decrease
E)investment will decrease and the budget deficit will increase

Question

Quizplus · Accepted Answer

Restrictive monetary policy typically leads to higher interest rates, which can decrease investment. Expansionary fiscal policy, such as increased government spending or tax cuts, tends to increase the budget deficit. The combination of these policies is most likely to result in decreased investment due to higher interest rates and an increased budget deficit due to the fiscal expansion.

Assume We Combine Restrictive Monetary Policy with Expansionary Fiscal Policy