When Congress reduces spending in order to balance the government's budget, it needs to consider
A) both the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth.
B) only the short-run effects on aggregate demand and aggregate supply.
C) only the long-run effects on saving and growth.
D) only the long-run effects on aggregate demand and aggregate supply.

Question

Quizplus · Accepted Answer

Congress needs to consider both the short-run effects on aggregate demand and supply, such as potential decreases in consumer spending and potential job losses, as well as the long-run effects on saving and growth, such as increased investor confidence and potential GDP growth. Ignoring either one of these factors could have negative consequences for the economy.

When Congress Reduces Spending in Order to Balance the Government's