If the economy in the graph shown is currently at point B, and the government increases its spending, the likely outcome will be that the:

Question

Quizplus · Accepted Answer

Point B is below the potential output level, indicating that there is room for the economy to increase its level of output without experiencing inflation. An increase in government spending will increase aggregate demand, which will likely shift the economy to a higher level of output.

If the Economy in the Graph Shown Is Currently at Point