Briefly explain with a graph whether given statement is true or false. “An increase in government...

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Briefly explain with a graph whether given statement is true or false. “An increase in government...

Briefly explain with a graph whether given statement is true or false. “An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run.”

business economics

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Answer 1

Answer #1

Answer - True

The rise in the government spending increases the consumption and investment in the economy. As a result the value of AD rises and AD curve shifts right. This results in the rise in the price level and real GDP in long run. It can be shown with the diagram below -

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Answer 2

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