Use the following to answer questions: -(Figure: Fiscal Policy I) Refer to Figure: Fiscal Policy I. Suppose that this economy is in equilibrium at E₂. If there is a decrease in government purchases, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP. A) AD_2; left; increase; decrease B) AD_2; left; decrease; decrease C) AD_1; right; increase; increase D) AD_1; right; decrease; increase

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A decrease in government purchases will cause a leftward shift of the aggregate demand curve (AD_{2) to AD}, resulting in a decrease in both the price level and real GDP. The correct choice is B.

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