Refer to the information provided in Figure 12.6 below to answer the questions that follow.
Figure 12.6
-Refer to Figure 12.6.Which of the following will,unambiguously,increase the price level?
A)an increase in government spending and an increase in costs
B)an increase in government spending and a decrease in costs
C)a decrease in government spending and an increase in costs
D)a decrease in government spending and a decrease in costs

Question

Refer to the information provided in Figure 12.6 below to answer the questions that follow.
  Figure 12.6
-Refer to Figure 12.6.Which of the following will,unambiguously,increase the price level?
A)an increase in government spending and an increase in costs 
B)an increase in government spending and a decrease in costs 
C)a decrease in government spending and an increase in costs 
D)a decrease in government spending and a decrease in costs

Quizplus · Accepted Answer

An increase in government spending will increase aggregate demand, which will cause the price level to increase. An increase in costs will decrease the aggregate supply, which will also cause the price level to increase. Therefore, an increase in government spending and an increase in costs will unambiguously increase the price level.

Refer to the Information Provided in Figure 12