7ALICIAal |7 LICIAal > LICH ALICIA. Find out r*# and |** (9) Continuing from (8), the increase in interest rate caused by increased government purchases implies the cost of borrowing will increase and therefore, it will reduce private investment. This phenomenon is defined as (10) If the Federal Reserve System held the Money supply constant at the level M"=40 and allowed the interest rate to adjust, the change in aggregate demand resulting from the increase in government spending would have been (a) Smaller but still positive (b) lager still positive (c) smaller but still negatives (d) larger still negative short-run aggregate demand