How Does an Increase in Government Spending Affect the Aggregate

question 230

Multiple Choice

How does an increase in government spending affect the aggregate expenditure line?

• A)It shifts the aggregate expenditure line upward.
• B)It shifts the aggregate expenditure line downward.
• C)It increases the slope of the aggregate expenditure line.
• D)It decreases the slope of the aggregate expenditure line.

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Definitions:

Long-run Profits

Earnings achieved over an extended period, where all inputs can be adjusted by firms, reflecting the company's ability to adapt and reoptimize operations.

Perfectly Competitive

A market structure characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information.

Efficient

The optimal allocation and utilization of resources to achieve the best possible outcome or output.

Excess Capacity

Excess capacity occurs when a firm's actual production is less than its maximum possible output, often indicating underutilized resources or insufficient demand.