Policy Impacts on AD and AS Steps:

• Reducing labor costs lowers production expenses, shifting short-run AS rightward.
• Keeping interest rates low boosts investment and consumption, shifting AD rightward.
• Both policies together increase equilibrium output while moderating price rises.
• Diagram A illustrates these simultaneous rightward shifts.

Why A is correct:

• A shows rightward AD and AS shifts, matching lower costs (AS via cost reduction) and low rates (AD via monetary stimulus).

Why the others are wrong:

• B: Only shifts AD right, ignoring labor cost effects on AS.
• C: Only shifts AS right, missing interest rate impact on AD.
• D: Shows leftward shifts, contradicting expansionary policies.

Final answer: A