Determine whether the events below will cause the aggregate demand curve to shift to the left or to the right.

Determine whether the events below will cause the aggregate demand curve to shift to the left or to the right. Assume the price le remains constant

a. Government purchases increase by $2 billion. Aggregate demand shifts (Click to select)

b. Real interest rates increase. Aggregate demand shifts (Click to select)

c. Taxes increase. Aggregate demand shifts (Click to select)

d. Aggregate consumption decreases as consumer confidence falls. Aggregate demand shifts (Click to select) .

Solutions

Expert Solution

a) Ans: Government purchases increases by $2 billion. Aggregate demand shifts to the right.

b) Ans: Real interest rates increase . Aggregate demand shifts to the left.

c) Ans: Taxes increase . Aggregate demand shifts to the left.

d) Ans: Aggregate consumption decreases as consumer confidence falls. Aggregate demand shifts to the left.

Explanation:

Monetary expanssion shifts the aggreagte demand curve to the right whereas monetary contraction shifts the aggreagte demand curve to the left.

Rahul Sunny answered 1 year ago

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