FIGURE 23-1

-Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose the AE curve shifts to AE2 and we move to a new equilibrium level of GDP at Y2 and point E on AD2.A possible cause of this change in equilibrium is
A)an increase in government purchases.
B)an increase in the net tax rate.
C)a decrease in desired investment.
D)a decrease in desired net exports.
E)an exogenous fall in the price level.

Question

FIGURE 23-1

-Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P0.Now,suppose the AE curve shifts to AE2 and we move to a new equilibrium level of GDP at Y2 and point E on AD2.A possible cause of this change in equilibrium is
A)an increase in government purchases. 
B)an increase in the net tax rate. 
C)a decrease in desired investment. 
D)a decrease in desired net exports. 
E)an exogenous fall in the price level.

Quizplus · Accepted Answer

An increase in government purchases would shift the AE curve upward, leading to an increase in equilibrium GDP and a new intersection with the AD curve at a higher price level. This matches the scenario described in the question stem, where the economy moves from equilibrium at point V to a new equilibrium at point E on AD2. The other choices listed would have different effects on the AE curve, or would not cause a shift in the AE curve at all.

FIGURE 23-1 -Refer to Figure 23-1.Assume the Economy Is Initially in Equilibrium