Question

According to the AD-AS model, if the economy is initially at its long-run potential growth rate, then a temporary increase in the growth rate of investment spending will cause: Select one: a. an increase in the real growth rate in the long run. b. an increase in the inflation rate in the long run. c. an increase in both the inflation and real growth rates in the short run. d. no effect on real growth rate or inflation in the short run. Clear my choice

Answer 1

C:an increase in both the inflation and real growth rates in the short run.

Step-by-step explanation:

According to the AD-AS model, if the economy is initially at its long-run potential growth rate, then a temporary increase in the growth rate of investment spending will cause an increase in both the inflation and real growth rates in the short run.