Questions: Refer to Figure 18.1. Which of the following would most likely cause a shift from AD1 to AD2?

Transcript text: Refer to Figure 18.1. Which of the following would most likely cause a shift from $A D_{1}$ to $A D_{2}$ ?

Solution

Solution Steps

Step 1: Identify the Graph Components

The graph shows the Aggregate Supply (AS) curve and three Aggregate Demand (AD) curves: AD1, AD2, and AD3. The x-axis represents Real Output, and the y-axis represents the Price Level.

Step 2: Understand the Shift from AD1 to AD2

A shift from AD1 to AD2 indicates an increase in aggregate demand. This shift can be caused by factors that increase overall demand in the economy.

Step 3: Determine Possible Causes for the Shift

Possible causes for an increase in aggregate demand include:

Increase in consumer spending
Increase in government spending
Increase in investment by businesses
Increase in net exports
Decrease in taxes
Increase in the money supply

Final Answer

The most likely cause for a shift from AD1 to AD2 is an increase in overall demand in the economy, which can be due to factors such as increased consumer spending, government spending, business investment, net exports, or a decrease in taxes.

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