In the long run, a permanent increase in government spending will
A)lead to a permanently higher level of real output.
B)lead to a permanently higher price level.
C)lead to a permanently higher level of investment spending.
D)have no effect on the level of output, the price level, or the level of investment spending.

Question

Quizplus · Accepted Answer

In the long run, a permanent increase in government spending is likely to lead to a permanently higher price level due to the increased demand in the economy. This can result in inflationary pressures as the aggregate demand increases, but it does not necessarily lead to a permanently higher level of real output or investment spending, as these can be affected by other factors such as productivity and interest rates.

In the Long Run, a Permanent Increase in Government Spending