Refer to Figure 13.1 for the following questions.
Figure 13.1

-In Figure 13.1, if fiscal policy successfully moves the economy from point B to equilibrium at potential GDP, this will:
A)increase the price level from P₂ to P₃.
B)increase the price level from P₁ to P₂.
C)decrease the price level from P₃ to P₂.
D)decrease the price level from P₂ to P₁.

Question

Refer to Figure 13.1 for the following questions.
Figure 13.1
 
-In Figure 13.1, if fiscal policy successfully moves the economy from point B to equilibrium at potential GDP, this will:
A)increase the price level from P₂ to P₃. 
B)increase the price level from P₁ to P₂. 
C)decrease the price level from P₃ to P₂. 
D)decrease the price level from P₂ to P₁.

Quizplus · Accepted Answer

Moving the economy to potential GDP typically involves stimulating economic activity, which can increase demand and thus increase the price level from P₂ to P₃.

Refer to Figure 13.1 for the Following Questions