Refer to the information provided in Figure 13.1 below to answer the questions that follow.
Figure 13.1
-Refer to Figure 13.1.Suppose the economy is at Point A an increase in government purchases can cause a movement to Point
A)E.
B)B.
C)C.
D)D.

Question

Refer to the information provided in Figure 13.1 below to answer the questions that follow.
  Figure 13.1
-Refer to Figure 13.1.Suppose the economy is at Point A an increase in government purchases can cause a movement to Point
A)E. 
B)B. 
C)C. 
D)D.

Quizplus · Accepted Answer

At Point A, the economy is operating at its potential GDP level. An increase in government purchases will shift the aggregate demand curve to the right, causing an increase in both real GDP and the price level. However, the economy will not move to Point E, as this is beyond the full employment level of output. Instead, the economy will move to Point B, where the increase in real GDP is accompanied by a higher price level.

Refer to the Information Provided in Figure 13