Starting from long-run equilibrium,a large increase in government purchases will result in a(n)_________ gap in the short run,and ________ inflation and ________ output in the long run.
A) expansionary;higher;potential
B) expansionary;lower;potential
C) expansionary;higher;higher
D) recessionary;higher;potential
E) recessionary;lower;lower

Question

Quizplus · Accepted Answer

In the short run, an increase in government purchases leads to an expansionary gap as aggregate demand increases. In the long run, the economy returns to potential output, but with higher inflation due to increased demand pressures.

Starting from Long-Run Equilibrium,a Large Increase in Government Purchases Will