Exhibit 15-6 Aggregate Demand and Supply Model

question 96

Multiple Choice

Exhibit 15-6 Aggregate demand and supply model

In Exhibit 15-6, if the aggregate demand curve is at AD ₁ , in order to reach the full-employment levl of GDP the government should :

• A) raise taxes to move to AD₂.
• B) cut taxes to move to AD₂.
• C) cut taxes to move to AD₃.
• D) cut spending to move to AD₂.

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Definitions:

Escalating Commitment

A behavioral pattern where an individual or organization continues to follow a failing course of action due to emotional attachment or the desire to justify prior investments.

Heuristics

Mental shortcuts or rules of thumb that simplify decision making by reducing complex problem-solving to simpler judgment processes.

Cost-benefit Impact

An assessment that compares the costs involved in an action to the benefits derived from it, used to determine its overall value and feasibility.

Escalating Cost Impact

The effect of costs increasing over time, often spiraling beyond original estimates, generally due to poor planning, scope creep, or unforeseen circumstances.