Consider the following news headline: "Governments plan massive hospital construction programs across the country." Choose the statement below that best describes the likely macroeconomic effects.
A)The AD curve shifts to the left; the price level falls and real GDP falls.
B)The AD curve shifts to the right; the price level rises and real GDP rises.
C)The AD curve shifts to the right and the AS curve shifts to the left; the price level rises and the effect on real GDP is indeterminate.
D)The AD curve shifts to the left and the AS curve shifts to the right; the price level falls and the effect on real GDP is indeterminate.
E)The AD and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises.

Question

Quizplus · Accepted Answer

The government's plan to undertake massive hospital construction programs will lead to an increase in government spending, which will increase aggregate demand (AD), shifting the AD curve to the right. This will lead to an increase in both the price level and real GDP as businesses increase production to meet the increased demand.

Consider the Following News Headline: "Governments Plan Massive Hospital Construction