Question

Which of the following is true in the short run when comparing an increase in government spending to an increase in private investment spending? O The increase in investment spending will result in a greater increase in employment than the increase in government spending O Government spending is inflationary, private investment spending is not. O Government spending must equal taxes; private investment spending must equal saving. O They will both increase aggregate demand.

Answer 1

The statement "They will both increase aggregate demand" is true in the short run when comparing an increase in government spending to an increase in private investment spending.

Both an increase in government spending and an increase in private investment spending will increase aggregate demand, which is the total amount of goods and services that consumers, businesses, government, and foreign entities are willing to buy.

In the short run, an increase in government spending will increase aggregate demand through a direct increase in government purchases of goods and services. An increase in private investment spending will increase aggregate demand through an increase in demand for investment goods, such as machinery and equipment.

While the other statements may be true in certain contexts, they do not directly address the comparison between an increase in government spending and an increase in private investment spending.

Step-by-step explanation: