Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is a decrease in government purchases, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.   A. AD2; left; increase; decrease   B. AD2; left; decrease; decrease   C. AD1; right; decrease; increase   D. AD1; right; increase; increase

Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter31: The Impacts Of Government Borrowing
Section: Chapter Questions
Problem 12RQ: What are some of the ways fiscal policy might encourage economic growth?
icon
Related questions
Question

Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is a decrease in government purchases, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

 

A. AD2; left; increase; decrease

 

B. AD2; left; decrease; decrease

 

C. AD1; right; decrease; increase

 

D. AD1; right; increase; increase

Figure: Fiscal Policy I
Aggregate
price
level
P₂
P₁
Y₁
LRAS
E₁
E₂
SRAS
AD₂
AD₁
Yp potential Real GDP
output
Transcribed Image Text:Figure: Fiscal Policy I Aggregate price level P₂ P₁ Y₁ LRAS E₁ E₂ SRAS AD₂ AD₁ Yp potential Real GDP output
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Gross Domestic Product
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Principles of Economics 2e
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
MACROECONOMICS
MACROECONOMICS
Economics
ISBN:
9781337794985
Author:
Baumol
Publisher:
CENGAGE L
Exploring Economics
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Economics (MindTap Course List)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Macroeconomics
Macroeconomics
Economics
ISBN:
9781337617390
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Survey Of Economics
Survey Of Economics
Economics
ISBN:
9781337111522
Author:
Tucker, Irvin B.
Publisher:
Cengage,