Which of the Following Will Be Most Likely to Dampen

question 26

Multiple Choice

Which of the following will be most likely to dampen the expansionary effects of an increase in government spending financed by borrowing?

• A) The budget deficit will cause business decision makers to become more optimistic.
• B) The increase in demand for loanable funds as the result of borrowing will cause interest rates to rise and private investment to fall.
• C) The increase in government spending will cause the money supply to expand, thereby causing an inflationary boom.
• D) The additional borrowing will cause the central bank to buy more bonds, which will reduce aggregate demand.

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Definitions:

Nervous System

The nervous system is a complex network of nerves and cells that carry messages to and from the brain and spinal cord to various parts of the body, controlling both voluntary and involuntary actions.

Endocrine System

A collection of glands that secrete hormones into the bloodstream, affecting various aspects of bodily function from growth to metabolism.

Thalamic System

A network within the brain that acts as a relay station, processing and transmitting sensory information to the cerebral cortex.

Medulla

An area in the brainstem responsible for controlling autonomic functions such as breathing, heart rate, and blood pressure.