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

Quizplus · Accepted Answer

A decrease in taxes increases aggregate demand, shifting the AD curve right. At point C, 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 Supply