Question

In: Economics

In the short run, an increase in government purchases, a. shifts the aggregate supply curve to...

In the short run, an increase in government purchases,

a. shifts the aggregate supply curve to the right

b. increases real GDP

c. shifts the aggregate demand curve to the left

d. decreases the price level

Solutions

Expert Solution

The correct answer is (b) increases real GDP

As Government spending is a Aggregate demand side phenomenon and hence will effect Aggregate Demand(AD) curve and not Aggregate supply curve(AS) and hence option (a) is incorrect.

Increase in Government spending will shift IS curve to the right and hence will result in AD curve to shift to the right. As AS curve will remain same and AD shift to the right, both Real GDP and Price level both will increase.

Hence, the correct answer is (b) increases real GDP.

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

What shifts the short run aggregate supply curve? What is the shape of the long run...
What shifts the short run aggregate supply curve? What is the shape of the long run aggregate supply curve and why is it that way? What does potential output mean and what is happening when the economy is at potential output?
) Explain whether each of the following events shifts the short-run aggregate supply curve, the aggregate...
) Explain whether each of the following events shifts the short-run aggregate supply curve, the aggregate demand curve, both, or neither. For each event that does shift a curve draw a diagram to illustrate the effect on the economy (you don’t have to send me the graphs, but you should draw them on scratch paper for practice). Households decide to save a larger share of their income. Florida orange groves suffer a prolonged period of below-freezing temperatures. Increased job opportunities...
1) In the long run, the short-run aggregate supply curve shifts to eliminate any existing output...
1) In the long run, the short-run aggregate supply curve shifts to eliminate any existing output gaps. Depict the parallel shift of the short-run aggregate supply curve that occurs in the long run. 2) Following a reduction in consumer spending, in the long run, what is the value of real GDP in this economy?
10. The long-run aggregate supply curve shifts right if
 10. The long-run aggregate supply curve shifts right if a. Immigration from abroad increases b. The capital stock increases c. Technology advances d. All of the above are correct 11. Which of the following would cause prices to decrease and real GDP to increase in the short run? a. Short-run aggregate supply shifts right. b. Short-run aggregate supply shifts left. c. Aggregate demand shifts right. d. Aggregate demand shifts left. 12. Which of the following is not a reason the New York Federal Reserve Bank president always gets to vote at...
In the short run, an increase in government purchases
In the short run, an increase in government purchasesshifts the aggregate demand curve to the left. decreases the price level. shifts the aggregate supply curve to the right. increases real GDP.
Which of the following shifts the short-run, but not the long-run, aggregate supply right?
56. Which of the following shifts the short-run, but not the long-run, aggregate supply right? A. a decrease in the price level B. a decrease in the expected price level C. a decrease in the capital stock D. a decrease in the savings rate 57. Which of the following would cause prices and real GDP to rise in the short run?  A. Short-run aggregate supply shifts right. B. Short-run aggregate supply shifts left. C. Aggregate demand shifts right. D. Aggregate demand shifts left.
The​ long-run aggregate supply curve shifts right at the same time as A.wages increase. B.the production...
The​ long-run aggregate supply curve shifts right at the same time as A.wages increase. B.the production possibilities curve shifts inward. C.the inflation rate increases. D.the production possibilities curve shifts outward.
Draw a diagram with an aggregate demand curve, a short-run aggregate supply curve, and a long-run...
Draw a diagram with an aggregate demand curve, a short-run aggregate supply curve, and a long-run aggregate supply curve, for an economy facing a recessionary gap. a) If the government does not intervene to close this gap, describe what will happen to this economy over time. Illustrate with a diagram. b) Describe the policies that the government could use to return the economy to long-run macroeconomic equilibrium, when it is facing a recessionary gap. Illustrate with a diagram. c) What...
Draw a diagram with an aggregate demand curve, a short-run aggregate supply curve, and a long-run...
Draw a diagram with an aggregate demand curve, a short-run aggregate supply curve, and a long-run aggregate supply curve, for an economy facing a recessionary gap. a) If the government does not intervene to close this gap, describe what will happen to this economy over time. Illustrate with a diagram. b) Describe the policies that the government could use to return the economy to long-run macroeconomic equilibrium, when it is facing a recessionary gap. Illustrate with a diagram. c) What...
if the short run aggregate supply curve intersects the aggregate demand curve to the right of...
if the short run aggregate supply curve intersects the aggregate demand curve to the right of potential GDP wages will rise?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT