In the short-run, an increase in government purchases causes
A) a shift of the DD curve to the left, output increases
B) a shift of the DD curve to the right, output decreases
C) a shift of the DD curve to the left, output decreases
D) a shift of the DD curve to the right, output increases
E) a shift of the DD curve upwards, supply increases

Question

Quizplus · Accepted Answer

An increase in government purchases will shift the DD curve to the right, as it increases the demand for goods and services. This will lead to an increase in output in the short run, as firms respond to the increased demand by producing more. Therefore, the answer is D.

In the Short-Run, an Increase in Government Purchases Causes