The figure above shows an economy aggregate demand curve and aggregate supply curves.
-Suppose the shift from AD₀ to AD₁ and from AS₀ to AS₁ is the result of fiscal policy.If the effect on aggregate supply was larger than the figure above shows, as a result the price level would be ________ 110 and real GDP would be ________ $14 trillion.
A) equal to; equal to
B) higher than; larger than
C) smaller than; larger than
D) equal to; larger than
E) smaller than; less than

Question

The figure above shows an economy aggregate demand curve and aggregate supply curves.
-Suppose the shift from AD₀ to AD₁ and from AS₀ to AS₁ is the result of fiscal policy.If the effect on aggregate supply was larger than the figure above shows, as a result the price level would be ________ 110 and real GDP would be ________ $14 trillion.
A) equal to; equal to 
B) higher than; larger than 
C) smaller than; larger than 
D) equal to; larger than 
E) smaller than; less than

Quizplus · Accepted Answer

If the aggregate supply curve shifts more than what is shown in the figure, then the price level would be lower than 110 (smaller than) because the shift in AS would result in increased output and decreased prices. Real GDP would be larger than $14 trillion because the increase in AS results in an increase in output. Therefore, the correct answer is C - smaller than 110 and larger than $14 trillion.

The Figure Above Shows an Economy Aggregate Demand Curve and Aggregate