Question

In: Economics

Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%.


Scenario 33-2 

Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%. 

Refer to Scenario 33-2. Which curve shifts and in which direction? 

a. Aggregate supply shifts left.  b. Aggregate supply shifts right.  c. Aggregate demand shifts right. d. Aggregate demand shifts left.

Solutions

Expert Solution

Answer is D. Aggregate demand shifts left.

When government decrease purchases it means government decreases its demand so it will affect the total demand. So total or aggregate demand will decrease and decrease in demand is shown by shifting the demand curve to left and increase in demand is shown by shifting the demand curve to right.

Rahul Sunny answered 2 years ago
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