Homework Answers
Correct Answer:
A
Explanation:
When government spending increases, then AD increases and leads to increase in price. At the same time, rise in minimum wage rate, causes cost of production to increase and AS curve shifts to the left. It also increases price level. So, the sure outcome is the increase in price level.
Though, change in output depends upon the degree of increase in AD and degree of decrease in AS. If increase in AD is more than the decrease in AS, then real output or GDP increases.
If increase in AD is less than the decrease in AS, then real output or GDP decreases.
If increase in AD is equal to the decrease in AS, then real output or GDP remains same.
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