Use the following to answer questions :
Figure: AD-AS
-(Figure: AD-AS) Look at the figure AD-AS. Suppose the economy is initially at E₁, where AD₁intersects SRAS₁ and LRAS. Now, suppose that the AD₁shifts to AD_2.That shift could be due to:

Question

Use the following to answer questions :
Figure: AD-AS

-(Figure: AD-AS) Look at the figure AD-AS. Suppose the economy is initially at E₁, where AD₁intersects SRAS₁ and LRAS. Now, suppose that the AD₁shifts to AD_2.That shift could be due to:

Quizplus · Accepted Answer

A shift of AD curve from AD₁ to AD₂ indicates an increase in aggregate demand due to an increase in money supply, which leads to an increase in output and price level. Option A is incorrect because a shift in AD curve due to an increase in price level would be a movement along the existing AD curve, not a shift. Option B is incorrect because a decrease in government expenditure would shift the AD curve to the left. Option C is incorrect because an increase in tax rates would also shift the AD curve to the left.

Use the Following to Answer Questions