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

Quizplus · Accepted Answer

An increase in government spending will increase the aggregate demand in the short run, resulting in an increase in the overall price level. Similarly, an increase in cost will shift the aggregate supply curve upward, resulting in an increase in the price level. Thus, the combination of these two factors will unambiguously increase the price level.

Which of the Following Will, Unambiguously, Increase the Price Level