Question

In the short run, the increase in government spending on infrastructure causes the price level to?

Answer 1

In the short run, an increase in government spending on infrastructure can cause the price level to rise as it increases aggregate demand (AD) and leads to inflationary pressure. Real GDP remains unchanged, but the price level increases.

Step-by-step explanation:

In the short run, an increase in government spending on infrastructure can cause the price level to rise. This is because increased government spending increases aggregate demand (AD), which can lead to inflationary pressure. When AD shifts to the right, real GDP remains unchanged, but the price level increases. This is represented by a movement from point Eo to E₁ to E2 on the aggregate demand curve.

Answer 2

In the short run, the increase in government spending on infrastructure causes the price level to the price level people expected and the quantity of output to natural level of output. The increase in government spending will cause the unemployment rate to the the natural rate of unemployment in the short run.

Step-by-step explanation: