Assuming a long-run aggregate supply curve, an increase in government spending results in ________ in output and ________ in prices.
A) no change; a decrease
B) no change; an increase
C) a decrease; a decrease
D) an increase; no change

Question

Quizplus · Accepted Answer

In the context of a long-run aggregate supply curve, an increase in government spending typically does not change the output because the economy is already at its full employment level. However, it leads to an increase in prices due to higher demand, resulting in inflation.

Assuming a Long-Run Aggregate Supply Curve, an Increase in Government