The federal government increases spending by $50 billion, and the main effect is an increase in the price level.It must be true that the economy is operating on the

Question

Quizplus · Accepted Answer

When the economy is operating on the vertical portion of the aggregate supply curve, it is at or very close to full capacity. In this situation, increases in aggregate demand primarily lead to increases in the price level rather than increases in output, which explains the observed effect of the government's spending increase.

The Federal Government Increases Spending by $50 Billion, and the Main