The Canadian government increases its expenditure on goods and services in a time of war or increased international tension.Starting from a position of long- run equilibrium, what effect does this event have on Canada's economy in the short run?
A)Real GDP increases and the price level rises.
B)Real GDP decreases and the price level falls.
C)Real GDP increases and the price level falls.
D)Real GDP decreases and the price level rises.
E)There is no change in either real GDP or the price level.

Question

Quizplus · Accepted Answer

When the Canadian government increases its expenditure on goods and services, especially during times of war or increased international tension, it injects more money into the economy. This increased spending leads to higher demand for goods and services, which, in the short run, typically results in an increase in real GDP due to higher production levels and a rise in the price level due to increased demand.

The Canadian Government Increases Its Expenditure on Goods and Services