Refer to the information provided in Figure 26.5 below to answer the question(s) that follow. Figure 26.5
-Refer to Figure 26.5. As a result of ________, the equilibrium interest rate increases and the equilibrium output level increases.
A) an increase in government spending
B) a decrease in government spending
C) an increase in the price level
D) a decrease in the price level

Question

Refer to the information provided in Figure 26.5 below to answer the question(s) that follow.  Figure 26.5
-Refer to Figure 26.5. As a result of ________, the equilibrium interest rate increases and the equilibrium output level increases.
A) an increase in government spending 
B) a decrease in government spending 
C) an increase in the price level 
D) a decrease in the price level

Quizplus · Accepted Answer

An increase in government spending shifts the aggregate demand (AD) curve to the right, leading to an increase in both output and the equilibrium interest rate. This is shown in the diagram as a shift in the AD curve from AD1 to AD2, which results in an increase in the equilibrium interest rate from r1 to r2 and an increase in the equilibrium output level from Y1 to Y2. Choices B, C, and D do not result in this outcome.

Refer to the Information Provided in Figure 26