To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could
A)increase the money supply by buying bonds.
B)increase the money supply by selling bonds.
C)decrease the money supply by buying bonds.
D)increase the money supply by selling bonds

Question

Quizplus · Accepted Answer

When the government increases its expenditures, it may lead to an increase in interest rates and decrease in private investment, causing crowding out. To reduce this effect, the Federal Reserve could increase the money supply by buying bonds, which would increase available funds and lower interest rates, making it easier for businesses and individuals to borrow and invest. This would help counteract the crowding out effect caused by government spending.

To Reduce the Effects of Crowding Out Caused by an Increase