ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Thus, one can conclude that an increase in government expenditure would cause a rightward shift of the aggregate demand curve, also known as the aggregate expenditure curve.

Detailed explanation-2: -Increased government spending is likely to cause a rise in aggregate demand (AD). This can lead to higher growth in the short-term. It can also potentially lead to inflation.

Detailed explanation-3: -An increase in any of the components of aggregate demand – consumption spending, investment spending, government spending, and net exports (X-M) – shifts the aggregate demand curve to the right, and a fall in any of these components shifts it to the left. A shift from AD to AD1 reflects an increase in aggregate demand.

Detailed explanation-4: -A shift of the AD curve to the right means that at least one of these components increased so that a greater amount of total spending would occur at every price level. This is called a positive demand shock.

Detailed explanation-5: -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.