The long-run effect of an increase in government spending is to raise
A)both real output and the price level.
B)real output and lower the price level.
C)real output and leave the price level unchanged.
D)the price level and leave real output unchanged.

Question

Quizplus · Accepted Answer

In the long run, an increase in government spending can lead to higher aggregate demand, which raises the price level. However, real output is determined by factors like technology and resources, which are not affected by government spending in the long run.

The Long-Run Effect of an Increase in Government Spending Is