The figure given below depicts the macroeconomic equilibrium in a country.?Figure 11.3
-Refer to Figure 11.3. Assume that the increase in aggregate demand from AD₁ to AD₂ was the result of government spending that was financed by borrowing. Assuming that the Ricardian equivalence holds and people expect taxes to rise in future, the equilibrium income will be:
A) $800.
B) less than $500.
C) more than $800.
D) less than $700.
E) $700.
Correct Answer:
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