An increase in government spending will

Question

Quizplus · Accepted Answer

An increase in government spending will increase aggregate demand, which will result in an increase in real GDP in the short run. However, in the long run, there may be supply-side effects that can limit the positive impact of the government spending on GDP. As for the other choices, increasing government spending will not necessarily increase the GDP to debt ratio, and it also does not necessarily mean that taxes will increase. Option E is partially correct as an increase in government spending can increase potential GDP in the long run through investment in infrastructure, education, and research and development. However, it may not necessarily increase potential GDP, depending on the efficiency and effectiveness of the government spending.

An Increase in Government Spending Will