According to the model developed in Chapter 3, when government spending increases but taxes stay the same, interest rates:
A)increase.
B)are unchanged.
C)decrease.
D)can vary.

Question

Quizplus · Accepted Answer

When government spending increases without a change in taxes, it typically leads to a higher budget deficit. To finance this deficit, the government may borrow more, which can increase the demand for loanable funds and lead to higher interest rates.

According to the Model Developed in Chapter 3, When Government