Question

An increase in the government budget deficit is most likely to result in an increase in which of the following?

A.the marginal propensity to consume
B. exports
C. the real interest rate
D. the money supply
E. the simple multiplier

Answer 1

D

Step-by-step explanation:

What is budget deficit? Thiis when taxes collected are less than the amount of government spending.

Budget deficit has to be financed this financing iincreases spending. The government finances its budget deficit through printing money,money supply in the economy increases. The Keynesean view, when money supply is increased in times of depression when both productive capacity and labour are lying idle due to deficiency of aggregate demand, price level is not likely to rise much and the effect of increase in money supply is to raise output or income.