Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD₁ to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z?

Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD₁ to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 3P

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Question

Price Level
aa-
0
X
AS
AD₂
AD₁
Z
Price Level
X
AS
AD₂
AD'
AD₁
YZ
Real GDP (Billions)
Graph A
Real GDP (Billions)
Graph B
Refer to the diagrams. Suppose that government undertakes fiscal policy designed to
increase aggregate demand from AD₁ to AD2 and thereby to increase GDP from X to Z. In
terms of graph B, which of the following might explain why GDP increases to Y rather than
to Z?
decrease in the saving schedule
crowding-out effect
reduction in tariffs imposed by our trading partners
depreciation of the dollar

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