Question

Select at least three policies, proposed actions, or actions taken by the presidents (Hoover or FDR) that would have changed the AD curve. Explain what would have been the impact on the AD curve and why. Express your opinion, with analysis in mind, not emotion.

Answer 1

Answer :

the three policies are as follows :

1. increase in goverment expenditure
2. reduction in tax rates
3. decrease in interest rate

there impact on the AD (aggregate demand ) curve :

1. increase in government expenditure : it increases aggregate demand and shifts AD curve to right. why - because if government increases it expenditure it increases money flow in the economy and if availability of money increases aggregate demand also increases.
2. reduction in taxes: it shifts the AD to right as it increses AD.

why- because if the tax rates will be low than people have to pay low taxes which means they will have more money to spend..  

3. decrease in interest rate: it will also increase aggregate demand and will shift demand curve towards right and if interest rate increases than aggregate demand will shift to left.

why: if interest rate will be low than people will take more loan for investment which will increase aggregate demand.   

* if you have any confusion feel free to ask.

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