The Figure Given Below Depicts the Macroeconomic Equilibrium in a Country

question 77

Multiple Choice

The figure given below depicts the macroeconomic equilibrium in a country. Figure 11.3 Refer to Figure 11.3.Assume that the increase in aggregate demand from AD₁ to AD₂ was the result of government spending that was financed by borrowing.Assuming that the Ricardian equivalence holds and people expect taxes to rise in future, the equilibrium income will be:

• A)$800.
• B)less than $500.
• C)more than $800.
• D)less than $700.
• E)$700.

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Definitions:

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The mechanism where sensory detectors decrease in sensitivity to unchanging stimuli as time progresses.

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A psychological phenomenon in which exposure to one stimulus influences a response to a subsequent stimulus, without conscious guidance or intention.