Exhibit 16A-2 Macro AD/AS Models In Panel (a) of Exhibit 16A-2, an expansionary Keynesian government stabilization policy designed to move the economy from Y₁ to Y_p would shift the: A) aggregate demand curve (A D)to the left. B) aggregate demand curve (A D) to the right. C) SRAS rightward. D) LRAS rightward.

Question

Quizplus · Accepted Answer

An expansionary Keynesian government stabilization policy would involve increasing government spending or reducing taxes, which would increase disposable income and consumer spending. This would shift the aggregate demand curve (AD) to the right, from AD1 to AD2, causing an increase in output (real GDP) from Y1 to Yp and an increase in price level from P1 to P2. The SRAS and LRAS curves would not shift in response to this policy.

​ ​ Exhibit 16A-2 Macro AD/AS Models

Exhibit 16A-2 Macro AD/AS Models