For the same economy (IS-LM aggregate demand with wage-floor aggregate supply): the effects of a contractionary fiscal policy on equilibrium output and equilibrium price level are
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DSE 2004 Question 25: AD-AS model
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For the same economy (IS-LM aggregate demand with wage-floor aggregate supply): the effects of a contractionary fiscal policy on equilibrium output Y and equilibrium price level P are (A) both Y and P decrease (B) Y does not increase and P decreases (C) Y decreases and P does not increase (D) Y and P are unchanged
AD-AS model has come up 59 times in 7 exams since 2004.
What this question tests
This question is on Stabilisation policy in AD-AS, part of AD-AS model in Macroeconomics.
What demand-management policy can do with different supply curves, including in a liquidity trap.
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