Suppose that the government decreases its expenditures on goods and services. Within the AS-AD model, the result will be ________ in real GDP and ________ in the price level.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease

Question

Quizplus · Accepted Answer

When the government decreases its expenditures on goods and services, it leads to a decrease in aggregate demand. Within the AS-AD (Aggregate Supply-Aggregate Demand) model, a decrease in aggregate demand results in a lower real GDP and a lower price level.

Suppose That the Government Decreases Its Expenditures on Goods and Services