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 and AS curves both shift to the right; the effect on the price level is indeterminate and real GDP rises
B)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
C)the AD curve shifts to the right; the price level rises and real GDP rises
D)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
E)the AD curve shifts to the left; the price level falls and real GDP falls

Question

Quizplus · Accepted Answer

The government's massive hospital construction programs would be considered a form of government spending, which would shift the AD curve to the right. Since the construction programs would increase investment and employment, the AS curve would shift to the right as well. This would lead to an increase in both price level and real GDP.

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