Figure 17.2
-In Figure 17.2,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 government use to move the economy to point C?

Question

Figure 17.2 
-In Figure 17.2,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 government use to move the economy to point C?

Quizplus · Accepted Answer

To move the economy from point B to point C, the government should use expansionary fiscal policy, which means increasing aggregate demand to shift the AD curve to the right. One way to do this is to increase government purchases, which would increase G in the equation Y = C + I + G + NX, leading to an increase in GDP and a shift of the AD curve to the right. Decreasing government purchases would have the opposite effect and lead to a shift of the AD curve to the left. Increasing income taxes would also decrease disposable income and consumption, leading to a decrease in aggregate demand and a shift of the AD curve to the left. Selling commonwealth government bonds and securities would not directly affect the AD curve or aggregate demand.

Figure 17.2 -In Figure 17.2,suppose the Economy in Year 1 Is at 1