Exhibit 16-4
-In Exhibit 16-4,if the economy started near point b,and government purchases increased,we would expect the economy in the short run to move to
A)point a
B)point e
C)point c
D)point d
E)none of the above; the economy would remain at point b

Question

Exhibit 16-4 
-In Exhibit 16-4,if the economy started near point b,and government purchases increased,we would expect the economy in the short run to move to
A)point a 
B)point e 
C)point c 
D)point d 
E)none of the above; the economy would remain at point b

Quizplus · Accepted Answer

If government purchases increase, this shifts the aggregate demand curve to the right. This would result in a higher equilibrium price level and output level. The only point that represents a higher price level and output level than point b is point c. So, we would expect the economy to move to point c in the short run.

Exhibit 16-4 -In Exhibit 16-4,if the Economy Started near Point B,and Government