Refer to the information provided in Figure 13.2 below to answer the questions that follow. Figure 13.2
-Refer to Figure 13.2.An expansionary fiscal policy would be most effective in raising output with little or no inflation when the aggregate demand curve shifts from
A)AD1 to AD2.
B)AD3 to AD4.
C)AD5 to AD6.
D)AD1 to AD6.

Question

Refer to the information provided in Figure 13.2 below to answer the questions that follow.  Figure 13.2
-Refer to Figure 13.2.An expansionary fiscal policy would be most effective in raising output with little or no inflation when the aggregate demand curve shifts from
A)AD1 to AD2. 
B)AD3 to AD4. 
C)AD5 to AD6. 
D)AD1 to AD6.

Quizplus · Accepted Answer

An expansionary fiscal policy aims to increase aggregate demand in order to stimulate economic growth, and this can be done through increasing government spending or cutting taxes. In Figure 13.2, an expansionary fiscal policy would be most effective when the aggregate demand curve shifts from AD1 to AD2, as this represents an increase in overall demand without pushing the economy beyond its full capacity. Shifting from AD3 to AD4, AD5 to AD6, or AD1 to AD6 would all risk increasing inflationary pressures, as the economy would be pushed beyond its full employment capacity.

Refer to the Information Provided in Figure 13