In: Economics
A decrease in government purchases shifts the _______ Curve to the _______
Select one
a. aggregate demand; left
b. aggregate supply: left
c. aggregate demands right
d. aggregate supply right
Option A
The government spending is the important component of aggregate
demand in the economy. Further, it can influence the aggregate
demand through the multiplier effect it creates in the
market.
If the government decreases its spending then it will affect the AD
curve negatively and it will shift to the left. This will also
lower the GDP in the economy.
Conversely, any increase in the government spending will shift the
aggregate demand curve to right and that will boost the economic
activity.