Figure 16-5
-Refer to Figure 16-5.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,Congress and the president would most likely
A)decrease government spending.
B)increase government spending.
C)increase oil prices.
D)increase taxes.
E)lower interest rates.

Question

Figure 16-5 
-Refer to Figure 16-5.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,Congress and the president would most likely
A)decrease government spending. 
B)increase government spending. 
C)increase oil prices. 
D)increase taxes. 
E)lower interest rates.

Quizplus · Accepted Answer

In order to shift the AD curve to the right from point A to point B, there needs to be an increase in aggregate demand. One way to accomplish this is through an increase in government spending, which will increase disposable income and consumer spending. This increase in demand will shift the AD curve to the right. Lowering interest rates could also potentially increase demand, but this is not a choice provided in the question. Decreasing government spending or increasing taxes would have the opposite effect and shift the AD curve to the left. Increasing oil prices would likely increase cost-push inflation and shift the AS curve to the left, leading to higher prices and lower output.

Figure 16-5 -Refer to Figure 16-5.In the Dynamic Model of AD-AS in of AD-AS