Figure 12.5 Alt text for Figure 12.5: In figure 12.5, a dynamic model of AD-AS.
Long description for Figure 12.5: The x-axis is labelled, real GDP (trillions of 2007 dollars).The y-axis is labelled, price level (CPI).6 lines are shown; SRAS1, SRAS2, AD1, AD2, LRAS1, and LRAS2.Line SRAS1 begins in the bottom left corner and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as line AD1, but is plotted to the right.Line LRAS1 is perpendicular to the x-axis, and begins from the x-axis value 1.7.Line LRAS2 is perpendicular to the x-axis, and begins from x-axis value 1.9.Line LRAS1 intersects lines AD1 and SRAS1 at point A (1.7, 100).Lines AD2 and SRAS2 intersect at point B (1.86, 102).Points A and B are connected to their respective coordinates on the x and y-axes with dotted lines.Line LRAS2 intersects the lines SRAS1 and SRAS2 near the top end of these lines.Line LRAS2 intersects the lines AD1 and AD2 near the bottom end of these lines.
-Refer to Figure 12.5.In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the federal government would most likely

Question

Figure 12.5  Alt text for Figure 12.5: In figure 12.5, a dynamic model of AD-AS.
Long description for Figure 12.5: The x-axis is labelled, real GDP (trillions of 2007 dollars).The y-axis is labelled, price level (CPI).6 lines are shown; SRAS1, SRAS2, AD1, AD2, LRAS1, and LRAS2.Line SRAS1 begins in the bottom left corner and slopes up to the top right corner.Line SRAS2 follows the same slope as line SRAS1, but is plotted to the right.Line AD1 begins at the top left corner and slopes down to the bottom center.Line AD2 follows the same slope as line AD1, but is plotted to the right.Line LRAS1 is perpendicular to the x-axis, and begins from the x-axis value 1.7.Line LRAS2 is perpendicular to the x-axis, and begins from x-axis value 1.9.Line LRAS1 intersects lines AD1 and SRAS1 at point A (1.7, 100).Lines AD2 and SRAS2 intersect at point B (1.86, 102).Points A and B are connected to their respective coordinates on the x and y-axes with dotted lines.Line LRAS2 intersects the lines SRAS1 and SRAS2 near the top end of these lines.Line LRAS2 intersects the lines AD1 and AD2 near the bottom end of these lines.
-Refer to Figure 12.5.In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the federal government would most likely

Quizplus · Accepted Answer

In order to move from point A to point B, there needs to be an increase in output (real GDP) and an increase in price level. One way to achieve this is through increasing government spending, which would shift the AD curve to the right. This would increase output and may cause a temporary increase in the price level as well. Decreasing government spending, increasing oil prices, increasing taxes, or lowering interest rates may have the opposite effect and could lead to a shift in the AD curve to the left, resulting in lower output and potentially lower price level.

Figure 125 Alt Text for Figure 12