Refer to the information provided in Figure 27.2 below to answer the question(s) that follow. Figure 27.2 -Refer to Figure 27.2. Planned investment would experience the greatest amount of crowding out when the aggregate demand curve shifts from A) AD₁ to AD₂. B) AD₃ to AD₄. C) AD₅ to AD₆. D) The amount of crowding out is the same for all AD curve shifts shown in the figure.

Question

Quizplus · Accepted Answer

As the aggregate demand curve shifts from AD₅ to AD₆, the equilibrium level of output remains the same at Y1, but interest rates rise from r1 to r2. This increase in interest rates will cause a greater amount of crowding out of planned investment, indicating that choice C is the best option.

Refer to the Information Provided in Figure 27