What happens in the economy illustrated in Figure 11-4 if government purchases increase by the amount necessary to achieve full employment?
A)The AD curve shifts to the right, the SRAS curve shifts to the left, and long-run equilibrium is achieved.
B)The AD curve shifts to the right, the price level increases, and long-run equilibrium is achieved.
C)The AD curve shifts to the right, the price level increases, and unemployment increases.
D)The AD curve shifts to the left, the price level increases, and employment decreases.
E)The SRAS curve shifts to the left, the price level decreases, and long-run equilibrium is achieved.

Question

Quizplus · Accepted Answer

When government purchases increase, the aggregate demand (AD) curve shifts to the right, leading to a higher price level and achieving long-run equilibrium at full employment.

What Happens in the Economy Illustrated in Figure 11-4 If