In the short run, a fiscal expansion that causes an increase in the budget deficit:
A) affects the level of output but not its composition.
B) affects both the level and composition of output.
C) affects only the price level.
D) is neutral.
E) affects only the composition of output.

Question

Quizplus · Accepted Answer

In the short run, a fiscal expansion that increases the budget deficit typically affects both the level and composition of output. This is because government spending directly increases aggregate demand, influencing the overall level of economic activity (level of output), and the specific areas where the government directs its spending can change the composition of output in the economy.

In the Short Run, a Fiscal Expansion That Causes an Increase