How Will an Increase in Government Expenditures During a Recession

question 123

Multiple Choice

How will an increase in government expenditures during a recession be reflected in GDP?

• A) An increase in government spending will reduce aggregate demand and decrease GDP.
• B) An increase in government spending will not affect GDP.
• C) An increase in government spending will increase GDP, but only if it is directed toward economically productive projects.
• D) The government spending will increase GDP even if the spending encourages rent seeking and other unproductive activities.

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Definitions:

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