Refer to the diagram. The impact of the public sector on the equilibrium GDP
A) is expansionary.
B) is contractionary.
C) is neutral.
D) cannot be determined from the information given.

Question

Refer to the diagram. The impact of the public sector on the equilibrium GDP
A) is expansionary. 
B) is contractionary. 
C) is neutral. 
D) cannot be determined from the information given.

Quizplus · Accepted Answer

The diagram shows that the initial equilibrium GDP is below the full-employment level of output. If the public sector increases its spending, this will increase the aggregate demand, shift the AD curve to the right, and increase the equilibrium GDP. Therefore, the impact of the public sector on the equilibrium GDP is expansionary.

Refer to the Diagram