If the economy is already at its potential output,then the spending multiplier is:
A)zero in the long run.
B)infinite in the long run.
C)equal to 1 in the long run.
D)zero in the short run.
E)equal to 1 in the short run.

Question

Quizplus · Accepted Answer

In the long run, any increase in aggregate demand in an economy already at its potential output leads to inflation rather than an increase in real output. Thus, the spending multiplier effect is essentially zero, as additional spending does not increase output.

If the Economy Is Already at Its Potential Output,then the Spending