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If an economy is in a recession and the government opts for an expansionary fiscal policy...

If an economy is in a recession and the government opts for an expansionary fiscal policy to shift the AD curve closer to the potential output, a sound finance economist with a Classical view, who holds the Ricardian equivalence theorem to be practically true, would conclude that the AD curve:

Multiple Choice

  • shifts to the right due to higher government spending.

  • shifts to the left due to higher government spending.

  • does not shift since the higher government spending is offset by higher private consumption.

  • does not shift since the higher government spending is offset by lower private consumption.

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Answer #1

Ans) the correct option is A. shifts to the right due to higher government spending.

Higher government spending will increase aggressive demand

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