Refer to the information provided in Figure 27.3 below to answer the question(s) that follow. Figure 27.3
-Refer to Figure 27.3. Assume the economy is at Point A. Lower oil prices shift the aggregate supply curve to AS₀. If the government decides to counter the effects of lower oil prices by decreasing government spending, then the price level will be ________ than P₀ and output will be ________ than Y₀.

Question

Refer to the information provided in Figure 27.3 below to answer the question(s) that follow.

Figure 27.3
-Refer to Figure 27.3. Assume the economy is at Point A. Lower oil prices shift the aggregate supply curve to AS₀. If the government decides to counter the effects of lower oil prices by decreasing government spending, then the price level will be ________ than P₀ and output will be ________ than Y₀.

Quizplus · Accepted Answer

Lower oil prices increase aggregate supply, shifting the AS curve to the right from AS to AS₀. This results in both lower price levels and higher output (Y) than at Point A. If the government decides to decrease spending, this would shift the AD curve to the left, resulting in lower output and a lower price level than at AS₀. Therefore, the price level will be less than P₀ and output will be less than Y₀.

Refer to the Information Provided in Figure 27