Question

Assume Japan begins with its economy running at full employment. If the Japanese government increases government expenditures the​ AS/AD model shows that in the short​ run, A. the AD curve will shift​ out, causing an increase in Japanese output and in the Japanese price level. B. the AS curve will shift​ out, causing an increase in Japanese output and in the Japanese price level. C. the AS curve will shift​ out, causing an increase in the Japanese price​ level, but not change in output. D. the AD curve will shift​ out, causing an increase in the Japanese price​ level, but not change in output.

Answer 1

Answer:

D) the AD curve will shift​ out, causing an increase in the Japanese price​ level, but not change in output.

Explanation:

If the government starts to increase spending, the total income will increase, shifting the AD curve outwards. Generally this situation would increase both the general price level (inflation) and total output (AS curve). But since the economy is already at full employment, real output will increase minimally (if any increase at all). The largest effect will be felt in the rise of inflation.