Question

Other things the same, when the government spends more, the initial effect is that a. aggregate demand shifts right. b. aggregate demand shifts left. c. aggregate supply shifts right. d. aggregate supply shifts left.

Answer 1

Answer: Option (a) is correct.

Step-by-step explanation:

Correct option: Aggregate demand shifts right.

Aggregate demand = consumption + government spending + Investment + Net Exports

Other things remains constant, if there is an increase in the government spending, as a result aggregate demand curve shifts rightwards. This will lead to increase the price level and level of output.