Suppose the government increases spending more than is necessary to close a recessionary gap. What is the most likely result?
A)Inflation will increase.
B)The price level will decline.
C)The equilibrium real GDP will fall.
D)The equilibrium real GDP will fall short of potential GDP.

Question

Quizplus · Accepted Answer

When the government increases spending more than necessary to close a recessionary gap, it can lead to a situation of excess demand in the economy. This increased demand for goods and services can lead to an increase in prices, resulting in inflation. Therefore, the most likely result is that inflation will increase.

Suppose the Government Increases Spending More Than Is Necessary to Close