Refer to Diagram 2 below.If supply side policies succeeded in shifting the aggregate supply curve to the right to AS₂ then a shift in aggregate demand curve from AD₁ to AD₂ would see national income Diagram 2

Question

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If supply side policies are successful in shifting the aggregate supply curve to AS₂, this would result in a higher potential output level (Yf₂) than the previous equilibrium output level (Yf₁). If there is a shift in the aggregate demand curve from AD₁ to AD₂, the new equilibrium output level would be Y₂. Therefore, national income would rise from Y₁ to Y₂.

Refer to Diagram 2 Below