Question

If the government raises government expenditures, then in the short run pricesa.rise and unemployment falls. b.fall and unemployment rises. c.rise and unemployment rises. d.fall and unemployment falls.

Answer 1

Answer:

a.rise and unemployment falls.      

Explanation:

An increase in government expenditures will bring about an increase in money in circulation which will result in an increase in aggregate demand and consequently an increase in prices. Increase in government spending will bring about an increase in economic activities, starting of new businesses which will result in a decrease in unemployment. However, in the long-run, government may increase taxes to make up for the increase in expenditures.