Question: 3 AS Price Level points AD 2 AD , ! X Real GDP (Billions) Refer to the figure. Suppose that the economy is currently operating

3 AS Price Level points AD 2 AD , ! X Real GDP (Billions) Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD2 and that the full-employment level of output is Y. If contractionary fiscal policy and accompanying multiplier effects move aggregate demand from AD2 to AD1, what will be the effect on real GDP and the price level ? Multiple Choice Real GDP will fall to X and the price level will fall to Po, assuming inflexible prices. Real GDP will fall to X and the price level will remain unchanged, assuming prices are inflexible downward. Real GDP will fall to Y and the price level will fall to Po, assuming inflexible prices. Real GDP will fall to Y and the price level will remain unchanged, assuming inflexible prices

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