If the economy is in a recession, and the government increases its spending to bring the economy back to its long-run equilibrium, the long-run level of output will:
A) return, with higher prices.
B) return, as will the original price level.
C) return, with lower prices.
D) increase, with higher prices.

Question

Quizplus · Accepted Answer

In the long run, increased government spending can lead to higher aggregate demand, which can bring the economy back to its potential output level, but often results in higher prices due to increased demand pressures.

If the Economy Is in a Recession, and the Government