Figure 8-1

-In Figure 8-1 above,suppose that the economy traces the path E₀ to E₁ to E₁'.We might conclude that ________ fiscal or monetary policy shifted the AD curve with price expectation first ________ then ________.
A)expansionary;constant;revised upward
B)expansionary;revised upward;constant
C)contractionary;revised upward;constant
D)contractionary;constant;revised downward

Question

Figure 8-1
 
-In Figure 8-1 above,suppose that the economy traces the path E₀ to E₁ to E₁'.We might conclude that ________ fiscal or monetary policy shifted the AD curve with price expectation first ________ then ________.
A)expansionary;constant;revised upward 
B)expansionary;revised upward;constant 
C)contractionary;revised upward;constant 
D)contractionary;constant;revised downward

Quizplus · Accepted Answer

The economy moved from E₀ to E₁, indicating an expansionary fiscal or monetary policy that shifted the AD curve with constant price expectations. However, the economy then moved from E₁ to E₁', indicating a revised upward price expectation, which would suggest that the policy was expanded further with higher expectations of inflation.

Figure 8-1 -In Figure 8-1 Above,suppose That the Economy Traces the Path