If an Increase in Government Spending Causes an Increase in Government

question 250

Multiple Choice

If an increase in government spending causes an increase in government borrowing, this could induce

• A) an increase in interest rates, which would cause private domestic investment to fall.
• B) an increase in interest rates, which would cause private domestic investment to rise.
• C) an increase in interest rates but no effect on private domestic investment.
• D) a decrease in interest rates, which would cause private domestic investment to rise.