In a self-correcting economy,an increase in government expenditures in the long-run will
A)raise equilibrium real GDP and raise the price level.
B)lower the price level but leave real GDP unaffected.
C)raise nominal GDP but leave real GDP unaffected.
D)leave the price level and real GDP unaffected.

Question

Quizplus · Accepted Answer

In a self-correcting economy, an increase in government expenditures can lead to an increase in nominal GDP due to higher spending and possibly higher prices. However, in the long run, the economy adjusts through mechanisms such as changes in interest rates and wages, leaving real GDP unaffected as it returns to its potential output level.

In a Self-Correcting Economy,an Increase in Government Expenditures in the Long-Run