Exhibit 15-6 Aggregate demand and supply model In Exhibit 15-6, if the aggregate demand curve is at AD₁ , the government should:

Question

Quizplus · Accepted Answer

The position of the aggregate demand curve at AD₁ indicates that there is a lower level of demand in the economy, resulting in lower output and employment. To address this, the government should implement expansionary fiscal policy, which involves cutting taxes to increase disposable income and stimulate consumption spending, leading to a shift in the aggregate demand curve to the right, to the position of AD₂. This would result in higher output and employment in the economy. Choices A, C, D, and E are not appropriate in this situation.

Exhibit 15-6 Aggregate Demand and Supply Model in Exhibit 15-6