Figure 11.2 shows the relationship between the price level and real GDP. Suppose the economy is currently at e'. If the government implements a contractionary fiscal policy, the economy would land up at:

A) point e*.
B) point e'.
C) point e''.
D) a point between e* and e'' on the potential output line.
E) a point between e* and e' on the short-run aggregate supply line.

Question

Figure 11.2 shows the relationship between the price level and real GDP. Suppose the economy is currently at e'. If the government implements a contractionary fiscal policy, the economy would land up at:

A) point e*. 
B) point e'. 
C) point e''. 
D) a point between e* and e'' on the potential output line. 
E) a point between e* and e' on the short-run aggregate supply line.

Quizplus · Accepted Answer

The Answer of Figure 11.2 shows the relationship between the price level and real GDP. Suppose the economy is currently at e'. If the government implements a contractionary fiscal policy, the economy would land up at:

A) point e*. 
B) point e'. 
C) point e''. 
D) a point between e* and e'' on the potential output line. 
E) a point between e* and e' on the short-run aggregate supply line.

Figure 112 Shows the Relationship Between the Price Level and Real