A drop in government spending would cause which type of shock?
A) Long-run supply shock
B) Short-run supply shock
C) Demand shock
D) Change in price level

Question

Quizplus · Accepted Answer

A drop in government spending directly affects the aggregate demand in the economy, leading to a demand shock. This is because government spending is a component of the total demand in the economy, and a reduction in spending decreases overall demand.

A Drop in Government Spending Would Cause Which Type of Shock