Refer to the ?Gure $A D _ { 2 }$ And That the Full-Employment Level of Output Is Y

Multiple Choice

Refer to the ?gure. Suppose that the economy is currently operating at the intersection of AS and AD $A D _ { 2 }$ and that the full-employment level of output is Y. If contractionary ?scal policy and accompanying
Multiplier effects move aggregate demand from AD
$A D _ { 2 } \text { to } A D _ { 1 }$ , what will be the effect on real GDP and the
Price level?

A) Real GDP will fall to Y and the price level will fall to $P _ { 0 }$ , assuming in?exible prices.
B) Real GDP will fall to X and the price level will remain unchanged, assuming prices are in?exible downward.
C) Real GDP will fall to X and the price level will fall to $P _ { 0 }$ , assuming in?exible prices.
D) Real GDP will fall to Y and the price level will remain unchanged, assuming in?exible prices.