Refer to Figure 16.2. -Refer to Figure 16.2.Which of the following would most likely cause a shift from AD₁ to AD₂? A) A decrease in transfer payments. B) An increase in government spending. C) A decrease in the money supply through open market operations. D) An increase in the marginal tax rate.

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Quizplus · Accepted Answer

An increase in government spending would cause an increase in aggregate demand, shifting the AD curve to the right. This would result in a higher equilibrium level of output and price level, leading to a shift from AD₁ to AD₂. A decrease in transfer payments would decrease disposable income, leading to a decrease in consumption expenditure and a leftward shift in the AD curve, resulting in a lower equilibrium level of output and price level. A decrease in the money supply through open market operations would increase interest rates, leading to a decrease in consumption and investment expenditure, and a leftward shift in the AD curve. An increase in the marginal tax rate would decrease disposable income, leading to a decrease in consumption expenditure and a leftward shift in the AD curve.