In Combating Stagflation, How May an Increase in Government Spending

question 98

Multiple Choice

In combating stagflation, how may an increase in government spending affect inflation and unemployment?  

• A) It may increase aggregate demand, which may help reduce inflation but aggravate unemployment. 
• B) It may increase aggregate demand, which may increase unemployment and inflation. 
• C) It may increase aggregate demand, which may help reduce unemployment but aggravate inflation. 
• D) It may increase aggregate demand, which may help reduce unemployment and inflation.

---

Definitions:

Levels

Levels refer to the different positions or stages in a hierarchical structure or process, indicating varying degrees of magnitude, importance, or progress.

Efficient Scale

The level of production that minimizes long-term average total costs, resulting from economies of scale without incurring diseconomies of scale.

Marginal Cost

The supplementary cost attached to the output of an additional product or service unit.

Diminishing Marginal Product

The principle stating that as one inputs more of a factor of production while holding other inputs constant, the added output produced from each additional unit of the variable input eventually decreases.