Which of the Following Would Be the Theoretical Outcome of Contractionary

question 120

Multiple Choice

Which of the following would be the theoretical outcome of contractionary fiscal policy in the following aggregate demand-aggregate supply model, where LRAS is long-run aggregate supply and SRAS is short-run aggregate supply?

• A) The aggregate demand (A
• D) curve would shift from AD₁ to AD₂.
• B) The short-run aggregate supply (SRA
• S) curve would shift from SRAS₂ to SRAS₁.
• C) The short-run aggregate supply (SRA
• S) curve would shift from SRAS₁ to SRAS₂.
• D) The aggregate demand (A
• D) curve would shift from AD₁ to AD₂ at the same time that the SRAS curve would shift from SRAS₁ to SRAS₂.
• E) The aggregate demand (A
• D) curve would shift from AD₂ to AD₁.

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Definitions:

Oceanic Crust

The part of the Earth's crust that underlies the oceans, thinner and denser than the continental crust.

Salt Deposits

Concentrations of salt left behind when water evaporates, often found in arid environments or as part of geological formations.

NaCl

Sodium chloride, a chemical compound more commonly known as table salt.

Seafloor Spreading

The formation of new oceanic crust at mid-ocean ridges, which gradually shifts away from the ridge, resulting in the creation of fresh seafloor.