If government spending rises more than anticipated, then equilibrium output should _____ and the equilibrium price level should _____ in the short run.
A) rise, rise
B) rise, fall
C) fall, rise
D) fall, fall

Question

Quizplus · Accepted Answer

When government spending increases, it directly boosts aggregate demand, leading to higher equilibrium output and a higher equilibrium price level in the short run due to demand-pull inflation.

If Government Spending Rises More Than Anticipated, Then Equilibrium Output