According to monetarists, an expansionary ﬁscal policy
A) will be ineffective because the interest rate will rise and crowd out private investment spending.
B) should not be permitted so long as a public debt exists.
C) should be used only when unemployment exceeds 6 percent of the labor force.
D) will be effective, provided the money supply is held constant.

Question

Quizplus · Accepted Answer

Monetarists argue that expansionary fiscal policy, which involves increasing government spending or decreasing taxes to stimulate the economy, will lead to higher interest rates. This increase in interest rates can crowd out private investment because borrowing becomes more expensive for businesses and consumers, potentially negating the stimulative effects of the policy.

According to Monetarists, an Expansionary ﬁScal Policy