Refer to the information provided in Figure 12.2 below to answer the questions that follow. Figure 12.2
-Refer to Figure 12.2. In response to a decrease in net taxes, the Fed would increase the interest rate by the greatest amount when the aggregate demand curve shifts from

Question

Refer to the information provided in Figure 12.2 below to answer the questions that follow.

Figure 12.2
-Refer to Figure 12.2. In response to a decrease in net taxes, the Fed would increase the interest rate by the greatest amount when the aggregate demand curve shifts from

Quizplus · Accepted Answer

In Figure 12.2, when the net taxes decrease, the aggregate demand curve shifts from AD₅ to AD₆. This shift causes an increase in the equilibrium level of output from Y1 to Y2, which increases the demand for loanable funds, leading to an increase in the interest rate from r1 to r2. This increase in interest rate is the greatest compared to other shifts in the aggregate demand curve. Therefore, the correct choice is C.

Refer to the Information Provided in Figure 12