📢 Too many exams? Don’t know which one suits you best? Book Your Free Expert 👉 call Now!

    Question

    Government increases spending on infrastructure and

    public sector employment. How does this affect GDP and inflation in the short run according to Keynesian theory?
    A GDP falls, inflation falls Correct Answer Incorrect Answer
    B GDP rises, inflation falls Correct Answer Incorrect Answer
    C GDP rises, inflation may rise Correct Answer Incorrect Answer
    D GDP stable, inflation stable Correct Answer Incorrect Answer
    E GDP falls, inflation rises Correct Answer Incorrect Answer

    Solution

    Demand-side stimulus increases GDP and potentially causes demand-pull inflation.

    Practice Next
    More Accounts Questions
    ask-question