FIGURE 24-2
-Refer to Figure 24-2. Suppose the economy is in a short-run equilibrium at Y1. A contractionary fiscal policy would restore the economy to potential output Y*) by shifting the
A) AS curve to the left to intersect AD at C.
B) AS curve to the right.
C) potential GDP and the AS curve to the left.
D) AD curve to the right.
E) AD to the left to intersect AS at point A.

Question

FIGURE 24-2
-Refer to Figure 24-2. Suppose the economy is in a short-run equilibrium at Y1. A contractionary fiscal policy would restore the economy to potential output Y*) by shifting the
A) AS curve to the left to intersect AD at C. 
B) AS curve to the right. 
C) potential GDP and the AS curve to the left. 
D) AD curve to the right. 
E) AD to the left to intersect AS at point A.

Quizplus · Accepted Answer

A contractionary fiscal policy reduces aggregate demand, shifting the AD curve to the left, which can help restore the economy to potential output by reducing inflationary pressures.

FIGURE 24-2 -Refer to Figure 24-2. Suppose the Economy Is in a in a Short-Run