Question

Suppose that the economy is operating at full employment. If the government wants to discourage 

consumption spending and stimulate investment spending, which of the following combinations of 

monetary and fiscal policy would most likely achieve these goals, assuming that consumption does 

not depend on the interest rate?

A. Monetary Policy- Increase money supply and Fiscal Policy- decrease personal income taxes

B. Monetary Policy- Increase money supply and Fiscal Policy- Increase personal income taxes

C. Monetary Policy- decrease money supply and Fiscal Policy-Increase government spending

D. Monetary Policy- decrease money supply and Fiscal Policy- Increase personal income taxes

Answer 1

C. Monetary Policy- decrease money supply and Fiscal Policy-Increase government spending

The government spendings may be available to increase projects and reach stability goals.