The Long-Run Effect of a Decrease in Government Purchases Can

Multiple Choice

The long-run effect of a decrease in government purchases can be described as the period of time when

A) the inflation adjustment line intersects the aggregate demand curve at the level of potential GDP.
B) firms are adjusting their prices and inflation is increasing to its new level.
C) real GDP is below potential GDP.
D) there is no spending balance.
E) firms are adjusting their prices and inflation is decreasing to its new level.