Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD 1 to AD 2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z?
A. Inflation.
B. An increase in stock prices.
C. Offsetting state and local finance.
D. A ratchet effect.
C. Offsetting state and local finance.
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