The long-run effect of an increase in government spending that shifts the economy's aggregate demand curve to the right is to raise
A) both real output and the price level.
B) real output and lower the price level.
C) real output and leave the price level unchanged.
D) the price level and leave real output unchanged.

Question

Quizplus · Accepted Answer

In the long run, the economy is at full employment, and an increase in aggregate demand leads to higher price levels (inflation) without affecting real output, which remains at its potential level.

The Long-Run Effect of an Increase in Government Spending That