In the short run, an increase in government expenditure on goods and services real GDP_____________ and the price level_____________.
A) increases; falls
B) decreases; falls
C) decreases; rises
D) increases; rises

Question

Quizplus · Accepted Answer

An increase in government expenditure on goods and services leads to an increase in aggregate demand, which results in an increase in real GDP and the price level in the short run. Therefore, the correct choice is D.

In the Short Run, an Increase in Government Expenditure on Goods