ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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rise, making aggregate demand shift right
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rise, making aggregate demand shift left
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fall, making aggregate demand shift right
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fall, making aggregate demand shift left
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Detailed explanation-1: -(a) The US economy goes into recession. [ As the US economy goes into recession, the demand for Canadian exports declines. This is because the US is the major trading partner of Canada. As a result, the aggregate demand of Canadian economy decreases and the AD curve shifts to the left from AD0 to AD1.
Detailed explanation-2: -In a recession consumer spending falls, therefore spending on imports decreases. In a recession, interest rates are cut. Therefore exchange rate depreciates making exports cheaper and imports more expensive. This reduction in the exchange rate improves the current account.
Detailed explanation-3: -Which of the following would happen to Canadian net exports and aggregate demand if countries that imported from Canada went into recession? Net exports would fall, and aggregate demand would shift left.
Detailed explanation-4: -Aggregate demand is the sum of household consumption, government spending, investment, and net exports. Thus the aggregate demand curve shifts to the right if one or more components increase.