If an economy is in a recession, and the government increases its spending to bring the economy back to its long-run equilibrium, the long-run level of output will:
A) return, but with higher prices.
B) return, as will the original price level.
C) return, but with lower prices.
D) not return.

Question

Quizplus · Accepted Answer

When the government increases its spending to counteract a recession, it stimulates demand in the economy. This increased demand can push prices higher, leading to a return to the long-run level of output but with higher prices. This is consistent with Keynesian economic principles, where fiscal policy is used to manage economic cycles.

If an Economy Is in a Recession, and the Government