When government spending flows to areas where resources are already fully employed,
A) the additional spending will stimulate strong growth in those areas.
B) aggregate demand will place downward pressure on the general level of prices.
C) the coordination problem accompanying the composition of aggregate demand is likely to improve.
D) the coordination problem accompanying the composition of aggregate demand is likely to worsen.

Question

Quizplus · Accepted Answer

When resources are fully employed, additional government spending can lead to inefficiencies and misallocation, worsening coordination problems in aggregate demand.

When Government Spending Flows to Areas Where Resources Are Already