Use Figure: Inflationary and Recessionary Gaps. In panel (a), an expansionary policy designed to move the economy from Y1 to Yp would attempt to shift the:Choose one answer from the options below.aggregate demand curve to the left by increasing aggregate demand.aggregate demand curve to the right by increasing aggregate demand.SRAS curve to the left.LRAS curve to the left.BackNext
Question
Use Figure: Inflationary and Recessionary Gaps. In panel (a), an expansionary policy designed to move the economy from Y1 to Yp would attempt to shift the:Choose one answer from the options below.aggregate demand curve to the left by increasing aggregate demand.aggregate demand curve to the right by increasing aggregate demand.SRAS curve to the left.LRAS curve to the left.BackNext
Solution
The correct answer is: aggregate demand curve to the right by increasing aggregate demand.
Here's why: In the context of an inflationary gap where the economy is producing below its potential (Y1 is less than Yp), an expansionary policy is used to stimulate the economy. This is typically done by increasing aggregate demand, which shifts the aggregate demand curve to the right. This increase in demand encourages businesses to produce more, leading to an increase in real GDP and moving the economy closer to its potential output (Yp).
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