Figure 12.12 Alt text for Figure 12.12: In figure 12.12, a graph depicting the changes in aggregate demand.
Long description for Figure 12.12: The x-axis is labelled, real GDP (trillions of 2007 dollars), and the y-axis is labelled, price level (CPI).2 lines are shown; AD1 and AD2.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.Point A is plotted approximately 3 quarters of the way along line AD1.Point B is plotted less than half way along line AD2.Points A and B are connected to the y-axis with a line, and the area between lines AD1 and AD2 is indicated by a right pointing arrow.
-Refer to Figure 12.12.If government purchases increase by $10 billion and lead to an ultimate increase in aggregate demand as shown in the graph above, the difference in real GDP between point A and point B will be

Question

Figure 12.12  Alt text for Figure 12.12: In figure 12.12, a graph depicting the changes in aggregate demand.
Long description for Figure 12.12: The x-axis is labelled, real GDP (trillions of 2007 dollars), and the y-axis is labelled, price level (CPI).2 lines are shown; AD1 and AD2.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.Point A is plotted approximately 3 quarters of the way along line AD1.Point B is plotted less than half way along line AD2.Points A and B are connected to the y-axis with a line, and the area between lines AD1 and AD2 is indicated by a right pointing arrow.
-Refer to Figure 12.12.If government purchases increase by $10 billion and lead to an ultimate increase in aggregate demand as shown in the graph above, the difference in real GDP between point A and point B will be

Quizplus · Accepted Answer

Since the increase in government purchases leads to an increase in aggregate demand, it will shift AD1 to AD2, which results in a higher level of real GDP. The difference in real GDP between point A and point B is the increase in real GDP due to the shift from AD1 to AD2. Since AD2 is to the right of AD1, the difference in real GDP between point A and point B will be more than $10 billion. Therefore, the correct answer is C.

Figure 1212 Alt Text for Figure 12