Refer to the above diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD 1 to AD 2 and thereby to…

Refer to the above diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD 1 to AD 2 and thereby to increase GDP from X to Z . In terms of graph B, which of the following might explain why GDP increasRefer to the above diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z? A) inflation B) an increase in stock prices C) offsetting state and local finance D) a ratchet effect

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