In the short run, what effect do increased government budget deficits have?

In the short run, increased government budget deficits can influence real GDP, the price level, and employment due to the government's borrowing and spending activities. When a government runs a deficit, it typically increases its expenditures on goods and services, infrastructure, or social programs. This injection of spending can lead to a direct increase in aggregate demand.

As the government spends more, it can stimulate economic activity. Businesses may respond to the increased demand by producing more goods and services, leading to higher output or real GDP. This increase in production often requires more labor, which can result in lower unemployment rates and higher overall employment as businesses hire additional workers to meet the greater demand.

Additionally, increased government spending can affect the price level. As aggregate demand rises, if the economy is near or at full capacity, it can lead to upward pressures on prices, contributing to inflationary effects. Thus, the relationship between government deficits and economic growth or employment is more pronounced in the short run, making this choice particularly pertinent to the dynamics of macroeconomic activity during such periods.