ECONOMICS
AGGREGATE DEMAND
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Movement along AD curve
|
|
|
an upward shift in AD curve
|
|
|
a downward shift in AD curve
|
|
|
none of these
|
Detailed explanation-1: -We know that as income increases, consumption increases due to a positive marginal propensity to consume (MPC). This explains the relation between consumption and income, i.e. The consumption function slopes upward because of this positive income-consumption relation.
Detailed explanation-2: -The tax cut, by increasing consumption, shifts the AD curve to the right.
Detailed explanation-3: -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-4: -Price is the main cause of movements along the aggregate demand curve. When the price level rises, the real money supply declines, forcing the interest rates to rise.