Use the following to answer questions: -(Figure: Fiscal Policy Choices) Refer to Figure: Fiscal Policy Choices. It would be appropriate to use expansionary fiscal policy to shift aggregate demand in _____ from _____. A) panel (b); AD₁ to AD₂ B) panel (a); AD₂ to AD₁ C) panel (a); AD₁ to AD₂ D) panel (b); AD₂ to AD₁

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Expansionary fiscal policy is used to shift the aggregate demand curve to the right, increasing real GDP and price level. In panel (a), the economy is experiencing a recessionary gap, illustrated by the output gap between potential GDP (Yp) and actual GDP (Y1). To close this gap, expansionary fiscal policy would be appropriate, shifting AD from AD₁ to AD₂. Therefore, the correct option is C.

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