Use the following to answer questions .
Exhibit: Supply-Side Economics
-(Exhibit: Supply-Side Economics) Assume that the economy is initially at Y₁. If economists advocate
Policies to promote economic growth, such as those which encourage investment and work effort, which of the following would occur?

Question

Use the following to answer questions .
Exhibit: Supply-Side Economics

-(Exhibit: Supply-Side Economics) Assume that the economy is initially at Y₁. If economists advocate
Policies to promote economic growth, such as those which encourage investment and work effort, which of the following would occur?

Quizplus · Accepted Answer

Policies that promote economic growth, such as encouraging investment and work effort, would lead to an increase in aggregate supply in the long run. This means that both the short-run and long-run aggregate supply curves would shift to the right (i.e. from S1U1B0 to S2U2B0). There would not necessarily be a change in aggregate demand. Therefore, choice C (a shift to the right in both SRAS and LRAS) is the best choice.

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