By decreasing government spending and aggregate demand, the policy ________ the price level and ________ equilibrium real GDP, ceteris paribus.
A)decreases; increases
B)increases; decreases
C)increases; increases
D)decreases; decreases

Question

Quizplus · Accepted Answer

By decreasing government spending and aggregate demand, the policy will lead to a decrease in the price level and a decrease in equilibrium real GDP, ceteris paribus. This is because the decrease in government spending will lead to a decrease in overall demand for goods and services, which will result in lower prices for those goods and services. Additionally, the decrease in demand will cause firms to produce fewer goods and services, resulting in a decrease in equilibrium real GDP.

By Decreasing Government Spending and Aggregate Demand, the Policy ________