Assuming an upward-sloping short-run aggregate supply curve, a decrease in government spending results in ________ in output and ________ in prices in the short run.
A) a decrease; a slight decrease
B) an increase; no change
C) an increase; a slight increase
D) no change; a decrease

Question

Quizplus · Accepted Answer

A decrease in government spending shifts the aggregate demand curve leftward, resulting in a decrease in output and a slight decrease in prices in the short run. This is assuming an upward-sloping short-run aggregate supply curve.

Assuming an Upward-Sloping Short-Run Aggregate Supply Curve, a Decrease in Government