Refer to the information provided in Figure 29.2 below to answer the question(s) that follow. Figure 29.2
-Refer to Figure 29.2. If the economy is currently at Point B and policy makers implement a policy which decreases the aggregate demand curve to AD₁

Question

Refer to the information provided in Figure 29.2 below to answer the question(s) that follow.

Figure 29.2
-Refer to Figure 29.2. If the economy is currently at Point B and policy makers implement a policy which decreases the aggregate demand curve to AD₁

Quizplus · Accepted Answer

If policy makers implement a policy which decreases aggregate demand from AD to AD1, it will cause a contraction in output and a decrease in the price level. Therefore, the correct answer is B, the price level will fall. GDP will decrease as well, but this option is not given as a choice. Inflation rate will also decrease due to the decrease in price level.

Refer to the Information Provided in Figure 29