Exhibit 12-4 -What Happens in the Economy Illustrated in Exhibit 12-4 If

Exhibit 12-4
-What happens in the economy illustrated in Exhibit 12-4 if government purchases increase by the amount necessary to achieve full employment?

A) The AD curve shifts to the right, the SRAS curve shifts to the left, and long-run equilibrium is achieved.
B) The AD curve shifts to the right, the price level increases, and long-run equilibrium is achieved.
C) The AD curve shifts to the right, the price level increases, and the expansionary gap worsens.
D) The AD curve shifts to the left, the price level increases, and the contractionary gap worsens.
E) The SRAS curve shifts to the left, the price level decreases, and long-run equilibrium is achieved.