An increase in government purchases
A)has a positive effect on real GDP in the long run.
B)has a negative effect on real GDP in the long run.
C)results in a lower rate of inflation in the long run.
D)results in lower interest rates in the long run.
E)results in a higher rate of inflation in the long run.

Question

Quizplus · Accepted Answer

An increase in government purchases can lead to a higher rate of inflation in the long run due to increased demand in the economy, which can push prices up if the increase in demand outstrips the economy's capacity to produce.

An Increase in Government Purchases