On the following graph AD represents the initial aggregate demand curve in a hypothetical economy and SRAS represents the

Question

On the following graph AD represents the initial aggregate demand curve in a hypothetical economy and SRAS represents the initial aggregate supply curve The economy s natural real GDP is 12 billion PRICE LEVEL 304 900 NRGOP AD O AD ADA AD 12 REAL GOP ons of dan The initial short run equilibrium level of real GDP is 21 100 103 104 SRAS Suppose the government seeking full employment borrows money and increases its expenditures by the amount it believes necessary to close the output gap According to critics of Keynesian fiscal policy which curve in the previous graph will most likely be the new aggregate demand curve 1 10 billion 14 billion 12 billion 2 and the initial short run equilibrium price level is

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