-In the above figure, if the economy is initially at point B and taxes are raised, if potential GDP does not change then the economy will move to point
A) stay at point B.
B) move to point C.
C) move to point D.
D) move to point A.

Question

-In the above figure, if the economy is initially at point B and taxes are raised, if potential GDP does not change then the economy will move to point
A) stay at point B. 
B) move to point C. 
C) move to point D. 
D) move to point A.

Quizplus · Accepted Answer

If taxes are raised, the aggregate demand curve will shift to the left. If potential GDP does not change, then the economy will move to the point where the new aggregate demand curve intersects the potential GDP line. This is point D.

-In the Above Figure, If the Economy Is Initially at Point