Figure 12-4
-Refer to Figure 12-4. Assume that the economy is initially at Y₁. If economists advocate Jpolicies to promote economic growth, such as those which encourage investment and work effort, which of the following would occur?

Question

Figure 12-4

-Refer to Figure 12-4. Assume that the economy is initially at Y₁. If economists advocate Jpolicies to promote economic growth, such as those which encourage investment and work effort, which of the following would occur?

Quizplus · Accepted Answer

Policies that encourage investment and work effort promote economic growth, which leads to an increase in productivity and potential output in the long run. This shift to higher potential output is reflected in a shift to the right in the LRAS curve. In the short run, this increase in productivity leads to lower costs of production, resulting in a shift to the right of the SRAS curve. Overall, there is an increase in both SRAS and LRAS, leading to higher output levels and lower price levels. Thus, Choice C is the correct answer.

Figure 12-4 -Refer to Figure 12-4. Assume That the Economy Is Initially