When real GDP is less than potential GDP, an increase in government expenditures will ________ real GDP and ________ the price level.
A) increase; raise
B) increase; lower
C) decrease; raise
D) decrease; lower

Question

Quizplus · Accepted Answer

When real GDP is less than potential GDP, an increase in government expenditures will stimulate economic activity, leading to an increase in real GDP. This increased demand typically raises the price level due to higher consumption and investment.

When Real GDP Is Less Than Potential GDP, an Increase