FIGURE 23-1
-Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is .Now,suppose the AE curve shifts to and we move to a new equilibrium level of GDP at and point E on .A possible cause of this change in equilibrium is
A)an increase in government purchases.
B)an increase in the net tax rate.
C)a decrease in desired investment.
D)a decrease in desired net exports.
E)an exogenous fall in the price level.

Question

FIGURE 23-1
-Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is  .Now,suppose the AE curve shifts to  and we move to a new equilibrium level of GDP at  and point E on  .A possible cause of this change in equilibrium is
A)an increase in government purchases. 
B)an increase in the net tax rate. 
C)a decrease in desired investment. 
D)a decrease in desired net exports. 
E)an exogenous fall in the price level.

Quizplus · Accepted Answer

An increase in government purchases would shift the AE curve upward, leading to an increase in equilibrium GDP and a higher price level. This is consistent with the given scenario, where GDP increases from V to E and the price level increases from 11ea71cb_f3cd_5008_91e5_99022a5a436c_TB5441_00 to 11ea71cb_f3ce_fde3_91e5_a5fbeb1c2540_TB5441_11. The other choices (B, C, D, E) would not lead to an upward shift of the AE curve and an increase in equilibrium GDP.

FIGURE 23-1 -Refer to Figure 23-1.Assume the Economy Is Initially in Equilibrium