Use the following to answer questions: -(Figure: Fiscal Policy II) Refer to Figure: Fiscal Policy II. Suppose that this economy is in equilibrium at E₁. If there is a decrease in government purchases, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP. A) AD_2; left; increase; decrease B) AD_2; left; decrease; decrease C) AD_1; right; increase; increase D) AD_1; left; decrease; decrease

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A decrease in government purchases will shift the aggregate demand curve (AD) to the left from ADS1U1B11 to ADS1U1B12. This will cause a decrease in the price level and real GDP, shifting the equilibrium from ES1U1B11S1U1B0 to ES2U2B11S2U2B0. Therefore, option D is the correct choice.

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