Suppose the economy is in long-run equilibrium. If the government increases its

Question

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to

A. rise. This rise in price expectations shifts the short-run aggregate supply curve to the right.

B. fall. This fall in price expectations shifts the short-run aggregate supply curve to the left.

C. rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.

D. fall. This fall in price expectations shifts the short-run aggregate supply curve to the right

Explanation / Answer

rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.

AD=C+I+G

Whenever the government expenditure rises, the aggregate demand shifts to the right. t This rise in price expectations shifts the short-run aggregate supply curve to the left.

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