Refer to Figure 10.1 for the following questions.
Figure 10.1

-Suppose the economy is at point C in Figure 10.1. If government spending decreases in the economy, where will the eventual long-run equilibrium be?
A)A
B)B
C)C

Question

Refer to Figure 10.1 for the following questions.
Figure 10.1
 
-Suppose the economy is at point C in Figure 10.1. If government spending decreases in the economy, where will the eventual long-run equilibrium be?
A)A 
B)B 
C)C

Quizplus · Accepted Answer

If government spending decreases from point C, it will shift the aggregate demand curve inward, causing the equilibrium output and price level to decrease. This movement will continue until the economy reaches the long-run equilibrium at point A, where the aggregate supply curve intersects with the new aggregate demand curve. At this point, both the price level and output will return to their natural long-run levels.

Refer to Figure 10.1 for the Following Questions