Starting from its potential output,an economy's government increases spending.In the long run,this economy will produce at:
A) an output level above its potential output.
B) its potential output.
C) an output level below its potential output.
D) its potential output level at a lower aggregate price level.

Question

Quizplus · Accepted Answer

In the long run, an economy's output will return to its potential output level regardless of the level of government spending. Therefore, the economy will produce at its potential output level even after the increase in government spending in the long run.

Starting from Its Potential Output,an Economy's Government Increases Spending