Exhibit 15-6 Aggregate demand and supply model

-In Exhibit 15-6,if the aggregate demand curve is at AD₁ ,the government should:

Question

Exhibit 15-6 Aggregate demand and supply model
 
-In Exhibit 15-6,if the aggregate demand curve is at AD₁ ,the government should:

Quizplus · Accepted Answer

If the aggregate demand curve is at AD₁, the government should cut taxes to move to AD₂. This will increase consumer spending, investment, and net exports, which will shift the aggregate demand curve to the right. Raising taxes or cutting spending would decrease aggregate demand, shifting the curve leftward. Cutting taxes to move to AD₃ is not necessarily the best choice as it may lead to an overheated economy with high inflation.

Exhibit 15-6 Aggregate Demand and Supply Model