Demand shocks do NOT include a(n): 1. increase in commodity prices. 2. tax increase. 3. reduction...

Demand shocks do NOT include a(n): 1. increase in commodity prices. 2. tax increase. 3. reduction in money supply. 4. increase in government expenditure.

Expert Solution

Ans: 4) increase in government expenditure.

Explanation:

Demand shocks includes an increase in commodity prices , an increase in tax rate ( both direct tax and indirect tax ) and reduction in money supply. These factors reduce the purchasing capacity of consumers . As a result , there is a decrease in demand in the economy.

On the other hand , an increase in government expenditure leads an expansion of economy. As a result , there is a increase in demand in the market.

Rahul Sunny answered 2 years ago

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