Use the Following to Answer Questions

Multiple Choice

Use the following to answer questions:
Figure: An Increase in Aggregate Demand
-(Figure: An Increase in Aggregate Demand) Refer to Figure: An Increase in Aggregate Demand. Assume that the economy is initially in long-run equilibrium at Y_P and P₁. Now suppose that there is an increase in the level of government purchases at each price level. This will:

A) shift the aggregate demand curve from AD₂ to AD₁.
B) shift the aggregate demand curve from AD₁ to AD₂.
C) lead to increased output and a decrease in the price level.
D) lead to decreased output and a decreased price level.