Deficit resulting from higher government spending

Reference no: EM13686007

In the short run, if the economy has a recessionary gap, an increased government budget deficit resulting from higher government spending or lower taxes is most probable to

1. Decrease aggregate demand, reduction process and increasing the recessionary gap.

2. Increase aggregate demand, raising process and creating and inflationary gap.

3. Have no effect on aggregate demand or real GDP after direct and indirect offsets are counted.

4. Increase aggregate demand, which will move the economy toward full employment real GDP.

Reference no: EM13686007

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