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Figure: Fiscal Policy I
-(Figure: Fiscal Policy I) Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E₂. If there is an increase in government transfers_____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Question

Use the following to answer questions:
Figure: Fiscal Policy I

-(Figure: Fiscal Policy I) Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E₂. If there is an increase in government transfers_____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Quizplus · Accepted Answer

An increase in government transfers increases disposable income, leading to higher consumption. This shifts the aggregate demand curve (AD) to the right, resulting in an increase in both the price level and real GDP.

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