Which of the following statements about fiscal policy and aggregate demand is (are) correct? I. A reduction in unemployment compensation would increase aggregate demand.
II) An increase in government spending would increase aggregate demand.
III) An increase in government spending would increase aggregate demand and lead to a permanent increase in aggregate output if government spending is implemented when the economy is in long-run equilibrium.

Question

Quizplus · Accepted Answer

An increase in government spending directly increases aggregate demand. A reduction in unemployment compensation would decrease aggregate demand as it reduces disposable income for consumers. An increase in government spending does not lead to a permanent increase in aggregate output in long-run equilibrium, as the economy self-adjusts to its potential output.

Which of the Following Statements About Fiscal Policy and Aggregate