Suppose the economy is experiencing a contractionary gap and the government increases spending to close the gap.In the short run one would expect

Question

Quizplus · Accepted Answer

When the government increases spending to close a contractionary gap, it injects more money into the economy, which boosts demand. This increased demand leads to higher output as firms produce more to meet the demand, and it also tends to push prices up, leading to a rise in the price level.

Suppose the Economy Is Experiencing a Contractionary Gap and the Government