In the short run, an increase in government expenditures on goods and services real GDP and the price level.
A) increases; falls
B) decreases; falls
C) increases; rises
D) decreases; rises

Question

Quizplus · Accepted Answer

When government expenditures on goods and services increase, it leads to an increase in aggregate demand. This causes an increase in real GDP as output increases to meet demand. However, the increase in demand puts pressure on prices, leading to a rise in the price level. Therefore, an increase in government expenditures on goods and services increases real GDP and the price level.

In the Short Run, an Increase in Government Expenditures on Goods