An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run.Question 45Answera.Trueb.False
Question
An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run.
Question 45
Answer
a. True
b. False
Solution
Answer
The statement "An increase in government spending will result in an increase in the price level and an increase in real GDP in the long run" is False.
Explanation
In the long run, an increase in government spending can lead to higher price levels (due to increased demand), but it does not necessarily lead to an increase in real GDP, as the economy might return to its long-run aggregate supply. Thus, while government spending can stimulate the economy in the short run, its long-term effects on real GDP are limited.
Therefore, the correct answer is: b. False.
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