In a binding situation,an increase in government spending
A) shifts the AD curve to the right.
B) shifts the AD curve to the left.
C) does not shift the AD curve.
D) causes the AD curve to become horizontal.

Question

Quizplus · Accepted Answer

In a binding situation, where the economy is operating at full employment or close to it, an increase in government spending will shift the AD (aggregate demand) curve to the right. This is because the increase in government spending will increase the overall demand for goods and services in the economy, causing an increase in total output and prices.

In a Binding Situation,an Increase in Government Spending