Which of the following statements are true ? 1. Increased government spending affects aggregate…
An implemented spending increase directly enters demand, while monetary expansion acts through transmission; vertical aggregate supply prevents a real-output response. Full…
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Which of the following statements are true ?
1. Increased government spending affects aggregate spending more quickly than does an increase in money supply.
2. An increase in aggregate demand has no effect upon real output when aggregate supply is vertical.
3. An increase in government spending always crowds out an equal amount of private sector interest sensitive spending.
4. Increased government spending affects aggregate supply less quickly than does an increase in money supply.
Answer and explanation
Correct answer A
An implemented spending increase directly enters demand, while monetary expansion acts through transmission; vertical aggregate supply prevents a real-output response. Full one-for-one crowding out is not universal, and the aggregate-supply timing assertion is unsupported. Thus1,2 are the intended textbook claims, with implementation-lag qualifications.
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UGC NET Economics