Use the following to answer questions: Figure: Inflationary and Recessionary Gaps -(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. A movement from AD₃ to AD₁ could be caused by: A)increased government purchases. B)increased government transfers. C)higher tax rates. D)lower tax rates.

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A movement from AD3 to AD1 indicates a decrease in aggregate demand, which can be caused by higher tax rates as they reduce consumers' disposable income, leading to lower consumption and investment.

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