-The figure above illustrates the aggregate demand, short- run aggregate supply, and long- run aggregate supply in Lotus Land. The economy is currently at point D and the government increases its expenditure on goods and services. The economy will move to . The price level will
, and the change in real GDP will be the increase in aggregate demand.
A) point A; fall; less than
B) point B; remain constant; the same as
C) point D; rise; less than
D) point C; rise; less than

Question

-The figure above illustrates the aggregate demand, short- run aggregate supply, and long- run aggregate supply in Lotus Land. The economy is currently at point D and the government increases its expenditure on goods and services. The economy will move to . The price level will
, and the change in real GDP will be the increase in aggregate demand.
A) point A; fall; less than 
B) point B; remain constant; the same as 
C) point D; rise; less than 
D) point C; rise; less than

Quizplus · Accepted Answer

An increase in government expenditure shifts the aggregate demand curve to the right, moving the economy from point D to point C. This results in a higher price level and a smaller increase in real GDP than the increase in aggregate demand due to the upward-sloping short-run aggregate supply curve.

-The Figure Above Illustrates the Aggregate Demand, Short- Run Aggregate