Refer to the information provided in Figure 12.2 below to answer the questions that follow. Figure 12.2 -Refer to Figure 12.2. Planned investment would experience the greatest amount of crowding out when the aggregate demand curve shifts from A) AD₁ to AD₂. B) AD₃ to AD₄. C) AD₅ to AD₆. D) The amount of crowding out is the same for all AD curve shifts shown in the figure.

Question

Quizplus · Accepted Answer

According to the graph, as aggregate demand shifts from AD₅ to AD₆, the equilibrium interest rate increases from 2.5% to 4%, which results in a larger decrease in planned investment (from $100 billion to $80 billion) than in the other shifts. Therefore, planned investment experiences the greatest amount of crowding out in this situation.

Refer to the Information Provided in Figure 12