Reference: Ref 14-1 (Figure: AS/AD Behavior) Assume that an economy begins at Point 1 in the figure. In the presence of an expansionary fiscal policy and the absence of intertemporal substitution, the economy moves to point ____ in the short run.

Question

Quizplus · Accepted Answer

An expansionary fiscal policy shifts the AD curve to the right, leading to an increase in output and higher price levels in the short run. In the absence of intertemporal substitution, there will be no change in the short-run AS curve. Therefore, the economy will move from point 1 to point 2 as shown in the figure.

Reference: Ref 14-1 (Figure: AS/AD Behavior) Assume That an Economy