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Refer to the Graph Above

Question 3

Multiple Choice

Refer to the graph above. Assume that the economy is in a recession with a price level of P<sub>1</sub> and output level Q<sub>1</sub>. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output? A) P<sub>2</sub> and Q<sub>4</sub> B) P<sub>1</sub> and Q<sub>1</sub> C) P<sub>2</sub> and Q<sub>2</sub> D) P<sub>1</sub> and Q<sub>3</sub> Refer to the graph above. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output?


A) P2 and Q4
B) P1 and Q1
C) P2 and Q2
D) P1 and Q3

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