A government decides to increase spending on infrastructure projects. How would this action likely affect the aggregate demand and what would be the expected impact on the equilibrium price level and output in the short run?

When a government increases spending on infrastructure projects, it puts more money into the economy. This spending creates jobs and boosts demand for materials and services, which raises aggregate demand. As demand increases, businesses may raise their prices because more people want to buy their goods and services, leading to a higher equilibrium price level. For example, if the government builds new roads, construction workers and suppliers will earn more, allowing them to spend more on other things. In the short run, this can also lead to an increase in overall output as businesses ramp up production to meet the higher demand.