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 is the result of fiscal policy. If the effect on aggregate demand was larger than the figure above shows, as a result the price level would be ________ 110 and real GDP would be ________ $17 trillion.

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> is the result of fiscal policy. If the effect on aggregate demand was larger than the figure above shows, as a result the price level would be ________ 110 and real GDP would be ________ $17 trillion. A) higher than; larger than B) smaller than; larger than C) equal to; larger than D) equal to; equal to E) smaller than; less than

Quizplus · Accepted Answer

If fiscal policy causes the aggregate demand to shift rightward more than shown, it would result in a higher price level and a larger real GDP than initially indicated. This is because an increase in aggregate demand, beyond what is depicted, would put upward pressure on both prices and output levels.

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