What would happen to aggregate demand if the federal government increased military purchases and state and local governments increased their road building budgets at the same time?
A)AD would increase.
B)AD would increase, because only federal government purchases affect AD.
C)AD would increase only if the change in federal purchases were smaller than the change in state and local purchases.
D)AD would decrease only if the change in federal purchases was smaller than the change in state and local purchases.

Question

What would happen to aggregate demand if the federal government increased military purchases and state and local governments increased their road building budgets at the same time?
A)​AD would increase.
B)​AD would increase, because only federal government purchases affect AD.
C)​AD would increase only if the change in federal purchases were smaller than the change in state and local purchases.
D)​AD would decrease only if the change in federal purchases was smaller than the change in state and local purchases.

Quizplus · Accepted Answer

Both increases in military purchases and road building budgets will increase government spending, which will increase aggregate demand. Therefore, AD would increase.

What Would Happen to Aggregate Demand If the Federal Government