Figure 16-1
-Refer to Figure 16-1. In a closed economy, what could have caused the economy to move from a to b?
A) a wave of optimism
B) a decrease in price
C) either fiscal or monetary contraction
D) an increase in the price of oil

Question

Figure 16-1 
-Refer to Figure 16-1. In a closed economy, what could have caused the economy to move from a to b?
A) a wave of optimism 
B) a decrease in price 
C) either fiscal or monetary contraction 
D) an increase in the price of oil

Quizplus · Accepted Answer

The movement from a to b could be caused by either fiscal or monetary contraction. This is because both contractionary fiscal and monetary policies involve reducing aggregate demand, which can lead to a decrease in the level of output and result in a lower equilibrium level of income and prices, as seen in the shift from AD1 to AD2 in the figure.

Figure 16-1 -Refer to Figure 16-1. in a Closed Economy, What Could