If the economy is already at its potential output,then the spending multiplier is
A)zero in the long run
B)infinite in the long run
C)1 in the long run
D)zero in the short run
E)1 in the short run

Question

Quizplus · Accepted Answer

When the economy is at its potential output, any increase in spending will not lead to an increase in output in the long run, as the economy is already operating at full capacity. Hence, the spending multiplier is zero in the long run.

If the Economy Is Already at Its Potential Output,then the Spending