An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run.

Question

Quizplus · Accepted Answer

In the long run, an increase in government spending is typically thought to affect the composition of output rather than increasing the overall level of real GDP, due to the economy's return to its potential output. Long-term increases in the price level can occur due to demand-pull inflation if the spending is excessive and not offset by taxes or other measures.

An Increase in Government Spending Will Result in an Increase