The Liberal government proposes infrastructure spending to speed the recovery from the pandemic

Liberal government to spend $10B on infrastructure to fuel pandemic economic recovery

Kathleen HarrisCBC NewsPosted: Oct 01, 2020 10:59 AM ET | Last Updated: October 1, 2020

If we imagine this spending all taking place within a yearand the marginal propensity to spend is .5.

In the context of the short-run AS-AD model, we would predict that this change alone will cause:

• A.Canadian GDP to increase by $20 billion
• B.Canadian GDP would increase but by less than $20 billion.
• C. The Price Level will rise, there will be no change in GDP.
• D. Canadian GDP would decrease but by more than $20 billion
• E. Canadian GDP would decrease by $20 billion.