Refer to the information provided in Figure 26.8 below to answer the question(s) that follow. Figure 26.8
-Refer to Figure 26.8. Suppose the economy is currently at Point A producing potential output Y₀. If the government increases spending, the economy moves to Point ________ in the short-run and to Point ________ in the long-run.

Question

Refer to the information provided in Figure 26.8 below to answer the question(s) that follow.

Figure 26.8
-Refer to Figure 26.8. Suppose the economy is currently at Point A producing potential output Y₀. If the government increases spending, the economy moves to Point ________ in the short-run and to Point ________ in the long-run.

Quizplus · Accepted Answer

In the short-run, increased government spending shifts the aggregate demand curve rightward, moving the economy from Point A to Point B. In the long-run, the economy returns to potential output, moving from Point B to Point C as prices adjust.

Refer to the Information Provided in Figure 26