When Real GDP Is Less Than Potential GDP, an Increase

question 86

Multiple Choice

When real GDP is less than potential GDP, an increase in government expenditures will real GDP and _ the price level.

• A) decrease; raise
• B) increase; lower
• C) decrease; lower
• D) increase; raise

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Definitions:

Short Run

A time period in economics during which at least one input is fixed, typically considered to be within a few months to a year.

Aggregate Supply

The total supply of goods and services that firms in an economy are willing and able to sell at different price levels.

Short-Run

A period during which at least one input, such as plant size or capital, is fixed, allowing only some production variables to be adjusted.

Long-Run

A period in economics where all factors of production and costs are variable, and all market adjustments to changes have been completed.