ECONOMICS (CBSE/UGC NET)

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ECONOMICS

AGGREGATE DEMAND

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:
A
affect neither aggregate supply nor aggregate demand.
B
increase aggregate demand.
C
reduce aggregate demand.
D
reduce aggregate supply.
Explanation: 

Detailed explanation-1: -The aggregate demand curve tends to shift to the left when total consumer spending declines. 2 Consumers might spend less because the cost of living is rising or because government taxes have increased. Consumers may decide to spend less and save more if they expect prices to rise in the future.

Detailed explanation-2: -The correct answer is D; an increase in real interest rates.

Detailed explanation-3: -When the government reduces its purchases on final goods and services, it is employing contractionary fiscal policy. This reduces the overall spending in the economy, and hence, shifts the aggregate demand curve to the left.

Detailed explanation-4: -Aggregate demand increases when the components of aggregate demand–including consumption spending, investment spending, government spending, and spending on exports minus imports–rise.

There is 1 question to complete.
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