Which of the Following Explains Why the Government Should Not

Multiple Choice

Which of the following explains why the government should not increase spending by the entire amount of the AD shortfall to move the economy to full employment?

A) Price level changes will make up for the difference between the fiscal stimulus and the AD shortfall.
B) The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap.
C) The government can increase taxes to create an additional increase in aggregate demand.
D) The price level is constant.