During the late 1960s,U.S.defense spending increased as the United States fought in Vietnam.This increase in government expenditure on goods and services most likely created
A)a recessionary gap.
B)an inflationary gap.
C)a decrease in aggregate supply.
D)a decrease in aggregate demand because consumers' expenditures decreased.
E)an increase in potential GDP.

Question

Quizplus · Accepted Answer

An increase in government expenditure on goods and services would increase aggregate demand, which could lead to an inflationary gap if the economy is already at or near full employment. This type of situation is known as demand-pull inflation, where the demand for goods and services outstrips the economy's ability to produce them, which results in upward pressure on prices. The increase in defense spending during the Vietnam War likely contributed to this type of inflationary pressure.

During the Late 1960s,U