In the aggregate expenditures model,an increase in government spending may:
A) decrease real GDP.
B) increase output and employment.
C) shift the aggregate expenditures schedule downward.
D) reduce the size of the inflationary gap.

Question

Quizplus · Accepted Answer

An increase in government spending would increase the aggregate expenditures in the economy, which would increase the demand for goods and services, leading to an increase in output and employment. This is due to the multiplier effect, where an initial increase in spending leads to a larger increase in output and income.

In the Aggregate Expenditures Model,an Increase in Government Spending May