Exhibit 16-3
-In Exhibit 16-3,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 16-3 
-In Exhibit 16-3,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

Starting from point b, an increase in government purchases would shift the aggregate demand (AD) curve to the right. This would result in a higher equilibrium real GDP and a higher price level. The new equilibrium point would be at point c, where the AD curve intersects the SRAS curve. Therefore, the correct answer is choice C.

Exhibit 16-3 -In Exhibit 16-3,if the Economy Started near Point B,and Government