Question

If total spending rises from one year to the next, then which of the following could not be true?A. the economy is producing a larger output of goods and services, and goods and services are selling at lower prices. B. the economy is producing a smaller output of goods and services, and goods and services are selling at higher prices. C. the economy is producing a smaller output of goods and services, and goods and services are selling at lower prices. D. the economy is producing a larger output of goods and services, and goods and services are selling at higher prices.

Answer 1

Answer:

C. the economy is producing a smaller output of goods and services, and goods and services are selling at lower prices.

Explanation:

An economy's level of spending reflects total spending on consumption, investment, government spending, ie, aggregate demand. The effect of increased spending experienced by an economy will have one of the following implications:

i) increase in production and change in selling price

ii) in an extreme case of an inflationary economy, the increase in spending does not affect real production, it is just a monetary effect of artificial price increases.

However, no increase in expenditure is compatible with decreasing production and selling price at the same time. This would be the case in a recessive scenario, incompatible with rising expenses.