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 taxes, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP. A) AD_1; right; increase; increase B) AD_1; left; decrease; decrease C) AD_2; right; increase; increase D) AD_2; right; decrease; increase

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A decrease in taxes increases consumers' disposable income, leading to higher consumption and investment by businesses. This shifts the aggregate demand curve to the right, resulting in an increase in both the price level and real GDP.

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