Based on the figure below. Starting from long-run equilibrium at point C, a tax increase that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies.

If actual output exceeds potential output, ________ shifts upward over time

A) the short-run AD curve B) the short-run AS curve C) the long-run AD curve D) the long-run AS curve

Suppose the United States pursued an expansionary fiscal policy to stimulate its economy and eliminate a recession. The crowding-out effect suggests that:

A. net exports would increase, thus increasing aggregate demand and partially reinforcing the fiscal policy. B. private investment would decrease, thus increasing aggregate demand and partially offsetting the fiscal policy. C. private investment would decrease, thus decreasing aggregate demand and partially offsetting the fiscal policy. D. net exports would increase, thus decreasing aggregate demand and partially offsetting fiscal policy.