FIGURE 23-1 Refer to Figure 23-1

question 45

Multiple Choice

FIGURE 23-1 Refer to Figure 23-1.Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point V.The price level is P₀.Now,suppose the AE curve shifts to AE² and we move to a new equilibrium level of GDP at Y₂ and point E on AD².A possible cause of this change in equilibrium is

• A)an increase in government purchases.
• B)an increase in the net tax rate.
• C)a decrease in desired investment.
• D)a decrease in desired net exports.
• E)an exogenous fall in the price level.

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Definitions:

Monetary Policy

The process by which a central bank controls the supply of money in an economy, often targeting interest rates to promote economic stability.

Fiscal Policy

A government's use of spending and taxation to influence the economy.

Aggregate Demand

The aggregate requirement for products and services in an economy at a specific general price point during a certain time frame.

Money Demand Curve

A graphical representation showing the relationship between the interest rate and the quantity of money that people want to hold.