-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 decreases its taxes. 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 C; rise; less than
C) point D; rise; less than
D) point B; remain constant; the same as

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 decreases its taxes. 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 C; rise; less than 
C) point D; rise; less than 
D) point B; remain constant; the same as

Quizplus · Accepted Answer

A decrease in taxes increases aggregate demand, moving the economy from point D to point C, where the price level rises and the increase in real GDP is less than the increase in aggregate demand due to upward pressure on prices.

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