55. (Problem 13b) The economy is in short-run macroeconomic equilibrium at point

Question

55. (Problem 13b) The economy is in short-run macroeconomic equilibrium at point E1 in the accompanying diagram.

To bring the economy back to long-run equilibrium the government can use fiscal or monetary policy. In either case, which curve would it be trying to shift and in what direction? A. It would be trying to shift the aggregate demand curve to the right. B. It would be trying to shift the aggregate supply curve to the left. C. It would be trying to shift the aggregate demand curve to the left. D. It would be trying to shift the aggregate supply curve to the right. RAS Aggregate pice level SRAS1 E1 P1 AD1 Yi YpReal GDP

Explanation / Answer

The government would try to shift the aggregate demand curve to the right by reducing taxes and increasing interest payments,transfer payments etc.

Answer-A

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