Figure 18-1

-Refer to Figure 18-1.Suppose the economy is in a recession and expansionary fiscal policy is pursued.Using the basic AD-AS model in the figure above,this would be depicted as a movement from

Question

Figure 18-1
 
-Refer to Figure 18-1.Suppose the economy is in a recession and expansionary fiscal policy is pursued.Using the basic AD-AS model in the figure above,this would be depicted as a movement from

Quizplus · Accepted Answer

In a recession, the economy is below potential output, which means that aggregate demand is too low compared to aggregate supply. To address this, expansionary fiscal policy is pursued, which means that the government increases government spending or decreases taxes to increase aggregate demand. This would shift the AD curve to the right from A to B, leading to an increase in both output and price level. Therefore, the best choice is A.

Figure 18-1 -Refer to Figure 18-1.Suppose the Economy Is in a Recession