Exhibit 17-3
-In Exhibit 17-3, if the economy started near point b, and government purchases increased, we would expect the economy in the short run to move to
A)point a
B)point e
C)point c
D)point d
E)none of the above; the economy would remain at point b

Question

Exhibit 17-3 
-In Exhibit 17-3, if the economy started near point b, and government purchases increased, we would expect the economy in the short run to move to
A)point a 
B)point e 
C)point c 
D)point d 
E)none of the above; the economy would remain at point b

Quizplus · Accepted Answer

If government purchases increase, this would shift the aggregate demand curve to the right, causing the equilibrium output level to increase. This would result in a movement from point b to point c, where output and price level are higher. Points a and e represent long-run equilibrium points, which would not be immediately reached in the short run. Point d represents a situation where output is higher than potential output, which would not be sustainable in the long run.

Exhibit 17-3 -In Exhibit 17-3, If the Economy Started near Point B