Final answer:
Option C is the correct answer. The most likely short-run effects of an increase in government expenditures include a decrease in the unemployment rate, an increase in the inflation rate, and an increase in real GDP, as this tends to boost aggregate demand and economic activity in the short term.
Step-by-step explanation:
The most likely short-run effects of an increase in government expenditures are typically captured by the outcome that includes a decrease in the unemployment rate, an increase in the inflation rate, and an increase in real GDP. According to Keynesian economics, an increase in government spending leads to an increase in aggregate demand, which in turn boosts economic output and employment in the short run. However, the increased demand can also lead to higher price levels, contributing to inflation. Therefore, as per the options provided, the correct scenario would be:
- Unemployment Rate: Decrease
- Inflation Rate: Increase
- Real GDP: Increase
The Keynesian perspective holds that government fiscal policy, such as increased expenditures, has a direct impact on aggregate demand, and thus on economic performance in the short run. On the other hand, the neoclassical perspective suggests that any short-run gains in output and employment are temporary, and in the long run, the economy returns to a state determined by potential GDP and aggregate supply, with wages and prices adjusting to reach this equilibrium.