Figure 17.1 -In Figure 17.1,if fiscal policy successfully moves the economy from point B to equilibrium at potential GDP,this will A) increase the price level from P₂ to P₃. B) increase the price level from P₁ to P₂. C) decrease the price level from P₃ to P₂. D) decrease the price level from P₂ to P₁.

Question

Quizplus · Accepted Answer

Fiscal policy that successfully moves the economy from point B to equilibrium at potential GDP will increase the price level from P2 to P3. This is because an expansionary fiscal policy will increase aggregate demand, which will lead to higher prices.

Figure 17.1 -In Figure 17.1,if Fiscal Policy Successfully Moves the Economy from the Economy