Based on the Figure Below

question 151

Multiple Choice

Based on the figure below. Starting from long-run equilibrium at point C, an increase in government spending that increases aggregate demand from AD to AD¹ will lead to a short-run equilibrium at point ___ creating _____gap.

• A) D; an expansionary
• B) B; expansionary
• C) A; a recessionary
• D) B; no output

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Definitions:

Unequivocally Pareto Optimal

A situation where an allocation cannot be adjusted to make one individual better off without making someone else worse off, signifying an optimal allocation of resources.

Pareto Optimality

A situation where resources are distributed in such a way that it's not possible to improve the position of any individual or satisfy a preference more fully without adversely affecting at least one other individual or preference criterion.

Market Imperfections

Situations in which the assumptions of a perfectly competitive market are not met, leading to inefficiencies in market outcomes.

Labor Force

The total number of people employed or actively seeking employment in a given economy.