(Figure: Expansionary Fiscal Policy A) the Figure Shows Expansionary

Multiple Choice

(Figure: Expansionary Fiscal Policy A) The figure shows expansionary fiscal policy. The economy begins in a recession at point R. An expansionary fiscal policy entails some combination of increases in government spending or lower taxes. This:

A) increases aggregate demand and new taxes are established at point 2.
B) decreases aggregate demand and a new equilibrium is established at point 2.
C) increases aggregate demand and a new equilibrium is established at point 2.
D) decreases aggregate demand and new taxes are established at point 2.