The effect of an increase in government spending on real GDP will be lesser:
A)the smaller the crowding-out effect.
B)the smaller the percentage of government spending financed by tax increases.
C)the larger the government budget surplus.
D)the more rapidly money is converted into goods.
E)the steeper the aggregate supply curve.

Question

Quizplus · Accepted Answer

An increase in government spending will have a lesser effect on real GDP if the aggregate supply curve is steeper, as this indicates that output is less responsive to changes in demand, leading to higher prices rather than increased output.

The Effect of an Increase in Government Spending on Real