Suppose that Congress and the president decide that economic performance is weakening and that the government should? "do something" about the situation. They make no tax changes but do enact new laws increasing government spending on a variety of programs.

Prior to the congressional and presidential? actions, careful studies by government economists indicated that the direct multiplier effect of a rise in government expenditures on equilibrium real GDP is equal to 6. In the 12 months since the increase in government? spending, however, it has become clear that the actual ultimate effect on real GDP will be less than half of that amount.

This could have happened because of all the following except

A. a supply-side effect.

B. a short-run increase in the price level.

C. an indirect crowding out.

D. direct expenditure offset

Answer rating: 100% (QA)

Option d is correct A short run increase in the price level when reduce the l... View the full answer