Refer to the above graph. What combination would most likely cause a shift from AD₁ to AD₂? A) An increase in taxes and an increase in government spending B) A decrease in taxes and an increase in government spending C) An increase in taxes and no change in government spending D) A decrease in taxes and a decrease in government spending

Question

Quizplus · Accepted Answer

An increase in government spending would shift the AD curve to the right, resulting in an increase in both output and prices. A decrease in taxes would increase consumer spending, which would also shift the AD curve to the right. Therefore, a combination of a decrease in taxes and an increase in government spending would most likely cause a shift from AD₁ to AD₂.

Refer to the Above Graph