If Aggregate Demand Intersects Aggregate Supply in the Horizontal Range

question 49

Multiple Choice

If aggregate demand intersects aggregate supply in the horizontal range of the aggregate supply curve, then, other things equal, an increase in government spending will:

• A)raise real GDP by the amount indicated by the government spending multiplier and leave the price level unchanged.
• B)lower real GDP by an amount equal to the increased spending and reduce inflation.
• C)raise the price level and leave real GDP unchanged.
• D)raise both real GDP and the price level by a multiple of the initial spending increase.
• E)have no effect on real GDP or the price level, because all private investment will be crowded out.

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