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Figure: A Real Shock
-(Figure: A Real Shock) Refer to the figure.After a real shock,the economy is operating at point Y in the figure.In the presence of crowding out,fiscal policy that would have shifted aggregate demand from AD₀ to AD₂ will only move the economy to point:

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Figure: A Real Shock

-(Figure: A Real Shock) Refer to the figure.After a real shock,the economy is operating at point Y in the figure.In the presence of crowding out,fiscal policy that would have shifted aggregate demand from AD₀ to AD₂ will only move the economy to point:

Quizplus · Accepted Answer

Crowding out occurs when government spending increases, causing interest rates to rise and reducing private investment, which decreases aggregate demand. As a result, fiscal policy that would have shifted aggregate demand to AD₂ will have a smaller impact on the economy, and the economy will only move to point X. Therefore, choice D is the correct answer.

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