The image displays an Aggregate Demand (AD) model graph, illustrating changes in price level and real GDP.### Graph Description:- **Axes:** - The vertical axis represents "Price Level." - The horizontal axis represents "Real GDP."- **Curves:** - **SRAS** (Short-Run Aggregate Supply) is shown with an upward-sloping line. - Two Aggregate Demand curves are depicted: - **AD₁**: The initial AD curve. - **AD₂**: The increased AD curve, shifted to the right from AD₁.- **Points and Movements:** - The initial equilibrium is at the intersection of SRAS and AD₁ at price level PL₁ and real GDP Y₁. - The new equilibrium, after the increase in aggregate demand, is at the intersection of SRAS and AD₂ at a higher price level, PL₂, and a higher real GDP, Y₂. - The arrows indicate the rightward shift of the AD curve and the resulting increase in both price level and real GDP.### Accompanying Text:The Aggregate Demand Model shows an increase in Aggregate Demand or an **increase in GDP**. Which Fiscal Policy Action would **cause** this change?### Options:- Raise Taxes & Cut Government Spending- Decrease Taxes & Government Spending- Increase Taxes & Government Spending- **Cut Taxes and Increase Government Spending** The correct choice that typically leads to an increase in aggregate demand is the fourth option: **Cut Taxes and Increase Government Spending**.

Here, according to the given graph, aggregate demand is increased that shifts the Aggregate demand…

SRAS PL PL AD2 AD REAL GDP Y,Y2 The Aggregate Demand Model shows an increase in Aggregate Demand or an increase in GDP. Which Fiscal Policy Action would cause this change O Raise Taxes & Cut Government Spending O Decrease Taxes & Government Spending O Increase Taxes & Government Spending O Cut Taxes and Increase Government Spending PRICE LEVEL

SRAS PL PL AD2 AD REAL GDP Y,Y2 The Aggregate Demand Model shows an increase in Aggregate Demand or an increase in GDP. Which Fiscal Policy Action would cause this change O Raise Taxes & Cut Government Spending O Decrease Taxes & Government Spending O Increase Taxes & Government Spending O Cut Taxes and Increase Government Spending PRICE LEVEL

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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