In the short run, a decrease in government expenditure ________ real GDP and ________ the price level.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question

Quizplus · Accepted Answer

In the short run, a decrease in government expenditure decreases real GDP because there is less overall demand in the economy. This decrease in demand also leads to a decrease in the price level as there is less money circulating in the economy.

In the Short Run, a Decrease in Government Expenditure ________