When the government closes an expansionary gap with a change in government spending,the _____ in government spending leads to _____.
A)decrease;a decrease in both real GDP and the price level
B)decrease;a decrease in real GDP and an increase in the price level
C)decrease;an increase in both real GDP and the price level
D)decrease;an increase in real GDP and a decrease in the price level
E)increase;a decrease in both real GDP and the price level

Question

Quizplus · Accepted Answer

To close an expansionary gap, the government would decrease its spending, which would lead to a decrease in aggregate demand. This results in a decrease in both real GDP and the price level.

When the Government Closes an Expansionary Gap with a Change