The Long-Run Effect of a Change in Government Spending Will

question 143

Essay

The long-run effect of a change in government spending will not cause real GDP to differ from its baseline value. However, in the long run, the values of the individual components of aggregate expenditure will differ from their baseline values. Why is this the case?

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Definitions:

Stockholders' Equity

The portion of a company's capital that belongs to the shareholders, calculated as the total assets of a company minus its total liabilities.

Average Inventory

An accounting measure that calculates the average value of inventory over a certain period of time to help assess inventory levels.

Buying Habits

Patterns or tendencies consumers exhibit when purchasing goods or services, including frequency, timing, and preference.

Direct Disposal Costs

Costs directly associated with the disposal of a fixed asset, including costs to remove, dismantle, and transport the asset.