Exhibit 15-6 Aggregate demand and supply model

In Exhibit 15-6, if the aggregate demand curve is at AD ₁ , in order to reach the full-employment levl of GDP the government should :

Question

Exhibit 15-6 Aggregate demand and supply model In Exhibit 15-6, if the aggregate demand curve is at AD ₁ , in order to reach the full-employment levl of GDP the government should :

Quizplus · Accepted Answer

In order to reach the full-employment level of GDP, the aggregate demand curve needs to shift to the right. In this case, cutting taxes would increase disposable income and consumption, leading to an increase in aggregate demand and a shift to AD₂. Raising taxes or cutting spending would decrease aggregate demand, which would not help reach the full-employment level of GDP.

Exhibit 15-6 Aggregate Demand and Supply Model