Figure 27-8
-Refer to Figure 27-8. In the graph above, suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B. Which of the following policies could the Congress and the president use to move the economy to point C?
A) increase government purchases
B) decrease government purchases
C) increase income taxes
D) sell Treasury bills

Question

Figure 27-8 
-Refer to Figure 27-8. In the graph above, suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B. Which of the following policies could the Congress and the president use to move the economy to point C?
A) increase government purchases 
B) decrease government purchases 
C) increase income taxes 
D) sell Treasury bills

Quizplus · Accepted Answer

Increasing government purchases would shift the aggregate demand curve to the right, which would move the economy from point B to point C, causing an increase in both real GDP and price level. Decreasing government purchases would shift the aggregate demand curve to the left, moving the economy further away from point C. Increasing income taxes or selling Treasury bills would have no direct effect on aggregate demand, and therefore would not help the economy reach point C.

Figure 27-8 -Refer to Figure 27-8. in the Graph Above, Suppose the Above