A shift from AD₁ to AD₂ in Figure 11.2 will

Question

Quizplus · Accepted Answer

The shift from AD₁ to AD₂ implies an increase in aggregate demand which should lead to an increase in output (GDP) and a reduction in the GDP gap. However, since the economy is already experiencing unemployment (represented by the U1 level), the increase in output may not be sufficient to close the gap completely. There is no information given in the question to suggest that the shift would cause significant inflation or eliminate the GDP gap entirely.

A Shift from AD1 to AD2 in Figure 11

A Shift from AD₁ to AD₂ in Figure 11