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    Question

    A government recently introduced the Policy mix of Monetizing Budget deficit to revive the economy. Using the IS-LM framework, the impact on Output and interest rate is

    A Output increases and interest rate decreases Correct Answer Incorrect Answer
    B Output and interest rate both increases Correct Answer Incorrect Answer
    C Output and interest rate decreases Correct Answer Incorrect Answer
    D Output increases and nothing can be said about interest rate Correct Answer Incorrect Answer

    Solution

    Monetizing Budget deficit meansprintingmoney to fund the government expenditure. It means using Policy Mix of expansionary monetary policy with expansionary fiscal policy. So, output will increase but nothing can be said about the interest rate.

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