The figure above shows an economy's aggregate demand curve and aggregate supply curve.
-Suppose the shift from AD₀ to AD₁ and from AS₀ to AS₁ in the figure above is the result of fiscal policy. Which of the policies below could lead to these shifts?
i. An increase in government expenditure
ii. A tax cut
iii. A decrease in government expenditure
iv. A tax increase

Question

The figure above shows an economy's aggregate demand curve and aggregate supply curve. -Suppose the shift from AD<sub>0</sub> to AD<sub>1</sub> and from AS<sub>0</sub> to AS<sub>1</sub> in the figure above is the result of fiscal policy. Which of the policies below could lead to these shifts? i. An increase in government expenditure ii. A tax cut iii. A decrease in government expenditure iv. A tax increase A) iv only B) iii and iv C) i and iv D) i and ii E) i only

Quizplus · Accepted Answer

Both an increase in government expenditure and a tax cut are expansionary fiscal policies that can shift the aggregate demand curve to the right, as described in the shifts from AD₀ to AD₁ and from AS₀ to AS₁.

The Figure Above Shows an Economy's Aggregate Demand Curve and Aggregate