Refer to the information provided in Figure 26.8 below to answer the question(s) that follow. Figure 26.8
-Refer to Figure 26.8. Suppose the economy is currently at Point A producing potential output Y₀. If the government decreases spending, the economy moves to Point ________ in the short run and to Point ________ in the long run.

Question

Refer to the information provided in Figure 26.8 below to answer the question(s) that follow.

Figure 26.8
-Refer to Figure 26.8. Suppose the economy is currently at Point A producing potential output Y₀. If the government decreases spending, the economy moves to Point ________ in the short run and to Point ________ in the long run.

Quizplus · Accepted Answer

The correct answer is A because a decrease in government spending will shift the aggregate demand curve to the left, causing the economy to move from Point A to Point D in the short run. In the long run, the economy will move to Point E as the price level adjusts.

Refer to the Information Provided in Figure 26