Use the Following Diagram to Answer the Following Questions

question 89

Multiple Choice

Use the following diagram to answer the following questions.

-Refer to Diagram 13-1. Suppose the economy is currently in equilibrium at point A. If government increases spending, this would most likely:

• A) shift aggregate demand from AD₁ to AD₂.
• B) shift aggregate demand from AD₁ to AD₃.
• C) cause unemployment.
• D) cause the equilibrium level of real GDP and the equilibrium price level to fall.

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Definitions:

Municipal Bonds

Municipal Bonds are debt securities issued by municipalities to finance public projects, often offering tax-exempt interest payments to the investors.

Seller-Financed Mortgage

A real estate purchase financing method where the seller extends credit to the buyer to purchase the property.

Interest Received

The amount earned from interest-bearing accounts or investments, such as savings accounts or bonds, which is usually taxable income.

Itemized Deductions

Deductions from taxable income that occur when taxpayers list out specific allowable expenses on their tax return.