-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 B; remain constant; the same as
B) point D; rise; less than
C) point A; fall; 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 B; remain constant; the same as 
B) point D; rise; less than 
C) point A; fall; less than 
D) point C; rise; less than

Quizplus · Accepted Answer

When the government increases its expenditure, aggregate demand increases, shifting the AD curve to the right. This movement will lead the economy to point C, where the price level rises, and the change in real GDP is less 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 Supply