The figure given below represents the new classical long run and short run Phillips curve measuring inflation rate on vertical axis and unemployment rate on horizontal axis.
Figure 15.2

-Refer to the Figure 15.2. Assume the economy is currently at point C. According to the new classical school, an expected increase in government spending:
A) would move the economy to point A.
B) would move the economy to point B.
C) would move the economy to point D.
D) would move the economy above point A.
E) would move the economy below point C.

Question

The figure given below represents the new classical long run and short run Phillips curve measuring inflation rate on vertical axis and unemployment rate on horizontal axis.
Figure 15.2
 
-Refer to the Figure 15.2. Assume the economy is currently at point C. According to the new classical school, an expected increase in government spending:
A) would move the economy to point A. 
B) would move the economy to point B. 
C) would move the economy to point D. 
D) would move the economy above point A. 
E) would move the economy below point C.

Quizplus · Accepted Answer

An expected increase in government spending would shift the AD curve to the right, moving the economy from point C to point A.

The Figure Given Below Represents the New Classical Long Run