Which of the following reduces the interest rate?
A)an increase in government expenditures and an increase in the money supply
B)an increase in government expenditures and a decrease in the money supply
C)a decrease in government expenditures and an increase in the money supply
D)a decrease in government expenditures and a decrease in the money supply

Question

Quizplus · Accepted Answer

When the government decreases its expenditures, it reduces the demand for funds borrowed in the financial market. This decrease in demand for funds will exert a downward pressure on the interest rates. When the money supply is increased, there is more money available in the market, which can also reduce interest rates. Therefore, a decrease in government expenditures and an increase in the money supply can both contribute to reducing the interest rate.

Which of the Following Reduces the Interest Rate