Suppose the economy was in equilibrium, and the national government increased spending by an expected amount equal to $200 billion. Monetarist theory would predict that:

a. Aggregate demand will rise, causing only real GDP to rise.
b. The real risk-free interest rate will rise, but real GDP will remain the same.
c. Aggregate demand will fall, and real GDP will fall.
d. Aggregate demand will rise causing only prices to rise.
e. Aggregate demand will rise causing both prices and real GDP to rise.


.B

Economics

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