According to the market clearing model a one-unit permanent increase in government purchases causes:

Question

Quizplus · Accepted Answer

According to the market clearing model, a one-unit permanent increase in government purchases will lead to an increase in aggregate demand. This increase in demand will lead to an increase in production and output. However, in the short run, prices are fixed, so output will increase without a corresponding increase in prices. This increase in output will cause an increase in consumption, as households benefit from the increase in production. The increase in output will also cause an increase in gross investment, as firms will need to invest in new capital to produce the additional output. Therefore, all of the above options are correct.

According to the Market Clearing Model a One-Unit Permanent Increase