Use the Graph to Answer

question 4

Multiple Choice

Use the graph to answer questions
-**Which of the following fiscal policy options would have greater potential of causing inflation?

• A)An expansionary policy shifting aggregate demand from AD₁ to AD₂
• B)A contractionary policy shifting aggregate demand from AD₄ to AD₃
• C)An expansionary policy shifting aggregate demand from AD₃ to AD₄
• D)A contractionary policy shifting aggregate demand from AD₂ to AD₁

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Definitions:

Consumer Surplus

The discrepancy between what consumers are prepared and capable of spending on a product or service versus what they end up paying.

Decreases Price

A reduction in the cost or value of a good or service.

Consumer Surplus

The variance between the overall sum consumers can and will pay for a good or service and what they genuinely spend on it.

Producer Surplus

The difference between the amount that producers are willing and able to sell a good for and the actual amount they receive (higher market price).