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 an increase in taxes_____ 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

Question

Quizplus · Accepted Answer

An increase in taxes will shift the aggregate demand curve to the left (ADS1U1B12 to ADS1U1B11), causing a decrease in both the price level and real GDP (from U1B12 to U1B0).

Use the Following to Answer Questions