For the following questions, consult the diagram below.
Figure 15-2
-Refer to Figure 15-2. In a closed economy, which of the following could have caused the economy to move from a to b?
A)a wave of optimism
B)a decrease in price
C)either fiscal or monetary contraction
D)an increase in the price of oil

Question

For the following questions, consult the diagram below.
Figure 15-2 
-Refer to Figure 15-2. In a closed economy, which of the following could have caused the economy to move from a to b?
A)a wave of optimism 
B)a decrease in price 
C)either fiscal or monetary contraction 
D)an increase in the price of oil

Quizplus · Accepted Answer

The movement from a to b could be caused by either fiscal or monetary contraction, as this leads to a decrease in aggregate demand and therefore a decrease in output and a decrease in the price level. A wave of optimism or an increase in oil prices would both lead to an increase in aggregate demand, causing a movement to the right, from a to c. A decrease in price would cause a movement down along the same aggregate demand curve, from a to d.

For the Following Questions, Consult the Diagram Below