Which of the following is likely to happen if the government increases its expenditure?
A) Unemployment will increase.
B) Consumption will increase.
C) Investment will decrease.
D) Price level will fall.

Question

Quizplus · Accepted Answer

When the government increases its expenditure, it injects more money into the economy. This increases the purchasing power of the people, which leads to increased consumption. Thus, option B is likely to happen. Unemployment will not increase (option A) because with increased government spending, there will be more economic activity and hence more jobs. Investment (option C) may increase or decrease depending on the overall economic climate and the nature of government spending. The price level (option D) is likely to rise if there is an increase in demand due to increased consumption, but may also depend on the supply-side factors.

Which of the Following Is Likely to Happen If the Government