If government spending increases,which of the following would be most likely in the short and in the long run? (Both comparisons are with regard to the original price level/output combination. )
A) Short-run increases in the price level,no change in output;long-run increases in output and in the price level
B) Short-run increases in output and in the price level;long-run increase in output,decrease in the price level
C) Short-run decreases in output and in the price level;long-run increase in the price level,no change in output
D) Short-run increases in output and in the price level;long-run increase in the price level,no change in output
E) Short-run decreases in output and in the price level;long-run decreases in output and in the price level.

Question

Quizplus · Accepted Answer

In the short run, increased government spending boosts aggregate demand, raising both output and the price level. In the long run, output returns to its natural level, but the price level remains higher due to increased aggregate demand.

If Government Spending Increases,which of the Following Would Be Most