When the economy is operating well below capacity,an increase in spending tends to be reflected primarily in a/an:
A)lower level of employment.
B)increase in price.
C)lower level of output.
D)higher level of output and employment.
E)increase in business failures.

Question

Quizplus · Accepted Answer

When the economy is operating well below capacity, there is excess idle capacity in the form of unemployed labor and underutilized capital. An increase in spending, particularly in the form of government spending, can stimulate economic activity and lead to higher levels of output and employment. This is because businesses can increase production to meet the rising demand, leading to higher employment levels to keep up with the increased demand. Therefore, D is the best choice.

When the Economy Is Operating Well Below Capacity,an Increase in Spending