Other things equal, an increase in government spending ________ the equilibrium interest rate and ________ equilibrium output.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question

Quizplus · Accepted Answer

An increase in government spending boosts overall demand in the economy, leading to higher equilibrium output. To finance this spending, the government may need to borrow more, increasing the demand for loanable funds, which typically raises the equilibrium interest rate.

Other Things Equal, an Increase in Government Spending ________ the Equilibrium