Figure 10-2

-Refer to Figure 10-2.If the economy is above full-employment real GDP and a contractionary fiscal policy decreases aggregate demand from AD₁ to AD₀,what will the new short-run equilibrium be?

Question

Figure 10-2
 
-Refer to Figure 10-2.If the economy is above full-employment real GDP and a contractionary fiscal policy decreases aggregate demand from AD₁ to AD₀,what will the new short-run equilibrium be?

Quizplus · Accepted Answer

A contractionary fiscal policy that decreases aggregate demand from AD₁ to AD₀ will move the economy to a new short-run equilibrium at E0 and RGDPNR, which is the full-employment level of real GDP.

Figure 10-2 -Refer to Figure 10-2.If the Economy Is Above Full-Employment Real