According to monetarists, an expansionary fiscal policy is a weak stabilization tool because
A)the asset demand for money varies inversely with the rate of interest.
B)government borrowing to finance a deficit will raise the interest rate and reduce private investment.
C)government borrowing will reduce the supply of money in circulation and depress the GDP.
D)government borrowing to finance a deficit will lower interest rates, increase money balances, and lower velocity.

Question

Quizplus · Accepted Answer

Monetarists argue that government borrowing to finance a deficit can lead to higher interest rates, which crowds out private investment, making fiscal policy less effective as a stabilization tool.

According to Monetarists, an Expansionary Fiscal Policy Is a Weak