Suppose the US Federal Government decides to engage in deficit spending whereby it increases its expenditure through debt financing. Which of the following statements describes deficit spending's short-run and long run affects on the price level? A) The price level remains unchanged over the short run and the long run. B) The price level increases above its initial level in short run and further increases over the long run. C) The price level decreases below its initial level in the short run and further decreases over the long run. D) The price level decreases below its initial level in the short-run but increases above its initial level over the long run.
Suppose the US Federal Government decides to engage in deficit spending whereby it increases its expenditure through debt financing. Which of the following statements describes deficit spending's short-run and long run affects on the price level? A) The price level remains unchanged over the short run and the long run. B) The price level increases above its initial level in short run and further increases over the long run. C) The price level decreases below its initial level in the short run and further decreases over the long run. D) The price level decreases below its initial level in the short-run but increases above its initial level over the long run.
Chapter17: Federal Deficits, Surpluses, And The National Debt
Section: Chapter Questions
Problem 7SQP
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Suppose the US Federal Government decides to engage in deficit spending whereby it increases its expenditure through debt financing. Which of the following statements describes deficit spending's short-run and long run affects on the price level?
A) The price level remains unchanged over the short run and the long run.
B) The price level increases above its initial level in short run and further increases over the long run.
C) The price level decreases below its initial level in the short run and further decreases over the long run.
D) The price level decreases below its initial level in the short-run but increases above its initial level over the long run.
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