Suppose there is a contractionary gap and the economy is in equilibrium on the SRAS at an output level beyond the economy's long-run real GDP.In the short run,if the government increases spending then

Question

Quizplus · Accepted Answer

When the government increases spending during a contractionary gap, it injects more money into the economy, which stimulates demand. This increased demand leads to higher output as firms produce more to meet the demand, and prices rise due to the increased demand for goods and services.

Suppose There Is a Contractionary Gap and the Economy Is