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- Refer to the Above Diagram

Question 5

Multiple Choice

- Refer to the above diagram. The economy is at equilibrium at point C. What fiscal policy would increase real GDP? A) Increase aggregate demand from AD<sub>2</sub> to AD<sub>1</sub> by decreasing taxes. B) Decrease aggregate demand from AD<sub>2</sub> to AD<sub>3</sub> by increasing taxes. C) Increase aggregate demand from AD<sub>1</sub> to AD<sub>2</sub> by increasing government spending. D) Make no change because the economy is at or near its full-employment level of real output.
- Refer to the above diagram. The economy is at equilibrium at point C. What fiscal policy would increase real GDP?


A) Increase aggregate demand from AD2 to AD1 by decreasing taxes.
B) Decrease aggregate demand from AD2 to AD3 by increasing taxes.
C) Increase aggregate demand from AD1 to AD2 by increasing government spending.
D) Make no change because the economy is at or near its full-employment level of real output.

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