If a given fiscal policy is fully accommodated by monetary policy,then
A)GDP will remain constant.
B)the interest rate will remain constant.
C)GDP and the interest rate will move in the same direction.
D)GDP and the interest rate will move in the opposite direction.

Question

Quizplus · Accepted Answer

When fiscal policy is fully accommodated by monetary policy, the central bank adjusts the money supply to counteract the effects of the fiscal policy. This means that the interest rate remains constant, as the central bank is keeping it at a predetermined level. However, the effects on GDP will depend on the nature of the fiscal policy - if the policy is expansionary, GDP will increase; if the policy is contractionary, GDP will decrease. Therefore, choice B is the correct answer.

If a Given Fiscal Policy Is Fully Accommodated by Monetary