A new government program reduces the cost of a college education at public universities by 50 percent.In the long run,this can be expected to ________ long-run aggregate supply and ________ aggregate demand.
A) increase; have no effect on
B) decrease; increase
C) decrease; decrease
D) increase; increase
E) have no effect on; have no effect on

Question

Quizplus · Accepted Answer

Since the cost of a college education at public universities is reduced by 50 percent, more students will choose to attend college. This will increase the labor force and human capital, leading to an increase in long-run aggregate supply. As more students attend college, they will spend money on tuition, textbooks, living expenses, etc., causing an increase in aggregate demand. Therefore, the correct answer is (D) increase; increase.

A New Government Program Reduces the Cost of a College