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2.5 Fiscal policy and supply-side policies

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Question 18

The diagram below shows the aggregate demand (ADADAD) and long-run aggregate supply (LRASLRASLRAS) curves for the Canadian economy.

AD/AS diagram representing Canada

The Canadian government expects that aggregate demand will increase in the long run from AD1 AD_1\,AD1​ to AD2AD_2AD2​. All other things being equal, which one of the following policies is most likely to transition the economy to a new long-run equilibrium at point E rather than point F?

Implementing a broad program of expansionary fiscal stimulus

Increasing the central bank's main policy interest rate

Increasing government investment in vocational training and education programs

Raising the nationwide corporate income tax rate

2.5 Fiscal policy and supply-side policies Questions

  1. A Level
  2. /Economics
  3. /2.5 Fiscal policy and supply-side policies