Exhibit 20A-2 Macro AD/AS Models

-In Panel (a)of Exhibit 20A-2,an expansionary Keynesian government stabilization policy designed to move the economy from Y₁ to Yp would shift the:
A) aggregate demand curve (A
D)to the left.
B) aggregate demand curve (A
D) to the right.
C) SRAS rightward.
D) LRAS rightward.

Question

Exhibit 20A-2 Macro AD/AS Models
 
-In Panel (a)of Exhibit 20A-2,an expansionary Keynesian government stabilization policy designed to move the economy from Y₁ to Yp would shift the:
A) aggregate demand curve (A
D)to the left. 
B) aggregate demand curve (A
D) to the right. 
C) SRAS rightward. 
D) LRAS rightward.

Quizplus · Accepted Answer

An expansionary Keynesian government stabilization policy involves an increase in government spending, which would shift the aggregate demand curve (AD) to the right, leading to an increase in output and price level from Y₁ to Yp. Shifting the short-run aggregate supply (SRAS) or long-run aggregate supply (LRAS) curves would not be an appropriate response to a stabilization policy.