Refer to the information provided in Figure 15.2 below to answer the questions that follow. Figure 15.2
-Refer to Figure 15.2.If economic policy causes aggregate demand curve shifts from AD2 to AD1,then
A)output decreases to Y0 and the price level decreases to P0.
B)output decreases to less than Y1.
C)the price level decreases lower than P0 and output decreases to Y0.
D)none of the above

Question

Refer to the information provided in Figure 15.2 below to answer the questions that follow.  Figure 15.2
-Refer to Figure 15.2.If economic policy causes aggregate demand curve shifts from AD2 to AD1,then
A)output decreases to Y0 and the price level decreases to P0. 
B)output decreases to less than Y1. 
C)the price level decreases lower than P0 and output decreases to Y0. 
D)none of the above

Quizplus · Accepted Answer

When the aggregate demand curve shifts from AD2 to AD1, the equilibrium point shifts from E2 to E1. This results in a decrease in both output (from Y1 to Y0) and the price level (from P1 to P0). Therefore, option A is the correct choice. Option B is incorrect because it suggests that output decreases even further from Y1, which is not true. Option C is also incorrect because it suggests that the price level decreases lower than P0, which is also not true.

Refer to the Information Provided in Figure 15