A government in a country has a fiscal deficit of $200 billion, and it covers this by borrowing from the central bank. If there are no offsetting factors, what will happen to aggregate expenditure and to the money supply when the government lowers its deficit to $120 billion by reducing public spending?
- Aaggregate expenditure decrease, money supply decrease
- Baggregate expenditure increase, money supply decrease
- Caggregate expenditure decrease, money supply increase
- Daggregate expenditure increase, money supply increase