The government increases the level of government expenditure. If there is no change in the aggregate supply curve, then aggregate demand will ________, real GDP will ________, and the price level will ________.
A)increase; remain the same; increase
B)remain the same; increase; increase
C)increase; increase; increase
D)decrease; increase; increase
E)decrease; remain the same; decrease

Question

Quizplus · Accepted Answer

When the government increases government expenditure, it leads to an increase in aggregate demand. As there is no change in the aggregate supply curve, the increase in demand will lead to an increase in real GDP and price level. Therefore, option C is the best choice.

The Government Increases the Level of Government Expenditure