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 demand 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 shift in aggregate demand was larger than what is shown in the figure, the economy would experience a larger increase in both price level and real GDP. The economy would move along the aggregate supply curve from AS₀ to AS₁, but the equilibrium point would be at a higher price level and higher level of real GDP, as the shift in AD would push the equilibrium point further to the right. Therefore, the price level would be higher than 110 and real GDP would be larger than $17 trillion. Choice A is the only one that reflects this outcome.

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