The use of government purchases (G) as a fiscal policy tool can have an effect on long-run growth in the economy. Under what circumstances might an increase in Gcause the level of potential output (Y*) to increase?A.If the increase in G causes a permanent increase in the marginal propensity to consume, which causes a permanent rightward shift of the AD curve.B.If the increase in G is offset by an equal decrease in C, I, and NX.C.If the increase in G crowds out private investment.D.If the increase in G leads to a permanent increase in the level of autonomous saving in the economy.E.If the increase in G is spent on public infrastructure that increases the productivity of private-sector production.

Government purchase is also known as the government spending on goods and services. The federal’s,…

Answered: The use of government purchases (G) as…

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 5SQP

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