An increase in government purchases will cause a(n)
A) increase in aggregate supply.
B) decrease in aggregate supply.
C) decrease in planned aggregate spending.
D) increase in planned aggregate spending.
E) no change in planned aggregate spending.

Question

Quizplus · Accepted Answer

An increase in government purchases directly increases the level of planned aggregate spending, as it is a component of GDP accounting. Therefore, choice D is the correct answer. An increase in government purchases does not directly affect aggregate supply, so choices A and B are incorrect. Additionally, it does not necessarily cause a decrease in planned aggregate spending or have no effect, so choices C and E are also incorrect.

An Increase in Government Purchases Will Cause A(n)