The figure above shows an economy's aggregate demand curve and aggregate supply curve.
-Suppose the shift from AD₀ to AD₁ and from AS₀ to AS₁ is the result of fiscal policy.If the effect on aggregate supply was larger than the figure above shows,as a result the price level would be ________ 110 and real GDP would be ________ $17 trillion.

Question

Quizplus · Accepted Answer

If the effect on aggregate supply was larger than the figure shows, it means the AS curve shifted more to the right than it is displayed in the figure. This would lead to a lower price level than 110, as there would be more output supplied at every price level. However, the real GDP would be larger than $17 trillion because the increase in aggregate supply shifts the economy to a higher level of output. Therefore, choice D (smaller than; larger than) is the best answer.

The Figure Above Shows an Economy's Aggregate Demand Curve and Aggregate