A decrease in government expenditures leads to a(n)________ in the growth rate of real GDP and a ________ shift of the labor demand curve.
A) decrease; right
B) increase; right
C) increase; left
D) decrease; left

Question

Quizplus · Accepted Answer

When government expenditures decrease, it leads to a decrease in aggregate demand (AD) in the economy which in turn leads to a decrease in the growth rate of real GDP. This is because there will be less spending in the economy from both the government and private sector. Additionally, since government spending also contributes to overall labor demand, a decrease in government expenditures will shift the labor demand curve to the left. This is because there will be fewer job opportunities available as government spending decreases.

A Decrease in Government Expenditures Leads to A(n)________ in the Growth