Because of intertemporal substitution,an increase in government spending growth results in:
A) a leftward shift of both the LRAS curve and the AD curve.
B) a leftward shift of the LRAS curve but a rightward shift of the AD curve.
C) a rightward shift of both the LRAS curve and the AD curve.
D) a rightward shift of the LRAS curve but a leftward shift of the AD curve.

Question

Quizplus · Accepted Answer

An increase in government spending growth typically shifts the Aggregate Demand (AD) curve to the right due to higher demand for goods and services. Intertemporal substitution can lead to increased labor supply and investment, potentially shifting the Long-Run Aggregate Supply (LRAS) curve to the right as well.

Because of Intertemporal Substitution,an Increase in Government Spending Growth Results