In the short run, decreases in government spending will
A) increase the level of prices and GDP.
B) decrease the level of GDP.
C) increase the level of prices.
D) have no effect on either the level of prices or GDP.

Question

Quizplus · Accepted Answer

Decreases in government spending will lead to a decrease in the level of GDP in the short run. This is because government spending is a component of aggregate demand, and a decrease in government spending will lead to a decrease in aggregate demand, causing a decrease in the level of GDP.

In the Short Run, Decreases in Government Spending Will