If the price level is fixed, then a decrease in government spending will lead to
A) a larger decrease in nominal GDP than in real GDP.
B) a smaller decrease in nominal GDP than in real GDP.
C) no decrease in either nominal GDP or real GDP.
D) a decrease in nominal GDP by the same amount as a decrease in real GDP.

Question

Quizplus · Accepted Answer

When the price level is fixed, a decrease in government spending directly reduces aggregate demand, leading to a decrease in both nominal GDP and real GDP by the same amount, as the change in spending directly affects the output without altering the price level.

If the Price Level Is Fixed, Then a Decrease in Government