Suppose the Economy Is Initially in Equilibrium at Point a in the Figure

Question 85
Multiple Choice

Suppose the economy is initially in equilibrium at point A in the figure below. A decrease in investment expenditures causes the AD curve to shift back to AD2. Under these circumstances, which of the following statements is true? img A) If the countercyclical fiscal policy is made at the correct time, the AD curve will shift to AD4. B) If there is no countercyclical fiscal policy, the AD curve will shift to AD4. C) If there is no countercyclical fiscal policy, the AD curve will shift back to AD1. D) If the countercyclical fiscal policy is timely enough, the AD curve will shift to AD3. E) If there is no countercyclical fiscal policy, the IA line will shift up.