Fiscal Policy Analysis
-On the graph above,an increase in government spending,with no change in taxes,is likely to move the economy from point 1 to point ________.

Question

Fiscal Policy Analysis 
-On the graph above,an increase in government spending,with no change in taxes,is likely to move the economy from point 1 to point ________.

Quizplus · Accepted Answer

An increase in government spending would shift the aggregate demand curve to the right. As a result, the economy would move from point 1 to point 6, where the aggregate demand curve intersects the original aggregate supply curve. At point 6, output increases from Y1 to Y2, while the price level increases only slightly from P1 to P2.