If the shifts in AD that will result from policy changes are fully and accurately anticipated, a decrease in government purchases or an increase in taxes would result in which of the following in the short run?
A)a higher level of real output and a higher price level
B)a higher level of real output but no change in the price level
C)a higher price level and a reduced level of real output
D)none of the above.

Question

If the shifts in AD that will result from policy changes are fully and accurately anticipated, a decrease in government purchases or an increase in taxes would result in which of the following in the short run?
A)​a higher level of real output and a higher price level
B)​a higher level of real output but no change in the price level
C)​a higher price level and a reduced level of real output
D)​none of the above.

Quizplus · Accepted Answer

A decrease in government purchases or an increase in taxes would typically lead to a decrease in aggregate demand, resulting in a lower level of real output and a lower price level in the short run, which is not listed among the options provided.

If the Shifts in AD That Will Result from Policy