If an Economy Is Above Potential Output and the Government

Multiple Choice

If an economy is above potential output and the government opts for a contractionary fiscal policy (running surpluses) to shift the AD curve, an economist with a Classical view, who holds the Ricardian equivalence theorem to be practically true, would conclude that the AD curve:

A) shifts to the right due to lower government spending.
B) shifts to the left due to lower government spending.
C) does not shift since the lower government spending is offset by higher private consumption.
D) does not shift since the lower government spending is offset by lower private consumption.