Exhibit 20A-2 Macro AD/AS Models

In Panel (a) of Exhibit 20A-2, an expansionary Keynesian government stabilization policy designed to move the economy from Y₁ to Y_p would shift the:

Question

Exhibit 20A-2 Macro AD/AS Models In Panel (a) of Exhibit 20A-2, an expansionary Keynesian government stabilization policy designed to move the economy from Y₁ to Y_p would shift the:

Quizplus · Accepted Answer

An expansionary Keynesian government stabilization policy is designed to increase government spending, which will increase aggregate demand (AD) through the multiplier effect. Therefore, the AD curve will shift to the right from AD1 to AD2, moving the economy from Y₁ to Y_p. The SRAS and LRAS curves will not shift in this case.