Question

If private investment is relatively sensitive to interest rates, then a fiscal expansion financed by government bond sales will:

Answer 1

The correct answer is letter "C": raise output by a relatively large amount.

Step-by-step explanation:

Typically, to boost production in the economy, the government tends to sell securities of its treasury causing the interest rate to fall. Lower interest rate promotes private investments increasing the country's growth. If the investment in that country is sensitive to the interest rate, the output rise is likely to be significant.