Question

I don’t see a lot of Econ questions on here. But this is for my macroeconomics class.

If a war breaks out and the government spends additional money on defense this will cause which of the following in the short run?

A) aggregate demand to increase
B) aggregate demand to decrease
C) short-run aggregate supply to increase in the short run
D) short-run aggregate supply to decrease in the short run

Answer 1

C)Shurt-run aggregate supply to decrease in the short run

As more money is spent on defense, more workers are needed, to supply what the army needs, this will create a lack of workers in other fields, this will lead to a decrease in the number of workers in other areas, and this eventually will shorten the aggregate supply.