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Refer to the Graph Below

Question 39

Multiple Choice

Refer to the graph below. Assume that the economy is in initial equilibrium where AS1 intersects AD1. Then a supply shock occurs that shifts AS1 to AS2. If the government counters with an expansionary fiscal policy that shifts AD1 to AD2, then it is most likely that: Refer to the graph below. Assume that the economy is in initial equilibrium where AS<sub>1</sub> intersects AD<sub>1</sub>. Then a supply shock occurs that shifts AS<sub>1</sub> to AS<sub>2</sub>. If the government counters with an expansionary fiscal policy that shifts AD<sub>1</sub> to AD<sub>2</sub>, then it is most likely that: A) AD<sub>2</sub> will shift to AD<sub>1</sub>. B) AS<sub>2</sub> will shift to AS<sub>1</sub>. C) AS<sub>2</sub> will shift to AS<sub>3</sub>. D) AS<sub>2</sub> will shift to AS<sub>3</sub> and AD<sub>2</sub> will shift to AD<sub>1</sub>.


A) AD2 will shift to AD1.
B) AS2 will shift to AS1.
C) AS2 will shift to AS3.
D) AS2 will shift to AS3 and AD2 will shift to AD1.

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