When the economy is operating well below capacity, an increase in spending tends to be reflected primarily in a/an:
A) lower level of employment.
B) increase in price.
C) lower level of output.
D) higher level of output and employment.

Question

Quizplus · Accepted Answer

When the economy is operating below its capacity or potential, an increase in spending will tend to increase production and result in a higher level of output and employment. This is because there is excess capacity in the economy that can be utilized to produce more goods and services without causing inflationary pressures or increasing prices. Therefore, a boost in spending will stimulate economic growth and increase employment opportunities, which in turn will generate more income for workers and boost consumer spending further.

When the Economy Is Operating Well Below Capacity, an Increase