Figure 5-2

-In Figure 5-2, an increase in government spending would cause
A)an outward shift in the aggregate supply curve and an increase in the price level.
B)an outward shift in the aggregate demand curve and an increase in the price level.
C)an inward shift of the aggregate demand curve and an increase in the price level.
D)an inward shift of the aggregate demand curve and a decrease in the price level.

Question

Figure 5-2
​ 
-In Figure 5-2, an increase in government spending would cause
A)an outward shift in the aggregate supply curve and an increase in the price level. 
B)an outward shift in the aggregate demand curve and an increase in the price level. 
C)an inward shift of the aggregate demand curve and an increase in the price level. 
D)an inward shift of the aggregate demand curve and a decrease in the price level.

Quizplus · Accepted Answer

An increase in government spending would increase aggregate demand, leading to an outward shift in the aggregate demand curve. This would cause an increase in the price level.

Figure 5-2 ​

Figure 5-2