Assume the economy is initially operating at the natural level of output.Now suppose a budget is passed that calls for an increase in government spending.This increase in government spending will,in the short run,cause an increase in
A)the interest rate.
B)the price level.
C)the nominal wage.
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

In the short run, an increase in government spending can lead to higher aggregate demand, which can increase the interest rate (A) due to higher demand for money, increase the price level (B) due to higher demand for goods and services, and potentially increase the nominal wage (C) as firms demand more labor to meet increased production needs.

Assume the Economy Is Initially Operating at the Natural Level