Which of the following is the most likely effect of an increase in government spending on goods to build or repair infrastructure?
A)It would shift the aggregate demand curve to the left.
B)It would have a crowding-out effect.
C)It would shift the short-run aggregate supply curve, but not the long-run aggregate supply curve.
D)It would shift the aggregate supply curve to the right in the long run.

Question

Quizplus · Accepted Answer

An increase in government spending on goods to build or repair infrastructure will lead to an increase in aggregate demand, which could lead to inflationary pressures in the short run. However, if the infrastructure spending leads to an increase in productivity and efficiency, it could increase the economy's potential output in the long run, shifting the aggregate supply curve to the right. This is because the infrastructure could lead to improvements in transportation, communication, and other infrastructure-related factors, which could lower costs and increase efficiency, leading to an increase in potential output. Therefore, in the long run, the economy could produce more goods and services at lower prices due to the increase in infrastructure spending.

Which of the Following Is the Most Likely Effect of an Increase