ECONOMICS
AGGREGATE DEMAND
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
An increase in exports of $100
|
|
|
An increase in government spending of $100
|
|
|
A decrease in taxes of $100
|
|
|
A decrease in imports of $100
|
|
|
A decrease in savings of $100
|
Detailed explanation-1: -Answer: Taxes have a smaller expansionary effect on AD than spending because the tax multiplier is always one less than the spending multiplier; a change in taxes does change disposable income, but people will spend AND save some of it (as opposed to spending 100% of the amount).
Detailed explanation-2: -An increase in government purchases boosts aggregate demand from AD1 to AD2. Short-run equilibrium is at the intersection of AD2 and the short-run aggregate supply curve SRAS1. The price level rises to P2 and real GDP rises to Y2. In contrast, a reduction in government purchases would reduce aggregate demand.
Detailed explanation-3: -The correct answer is D; an increase in real interest rates. An increase in real interest rates reduces the investment expenditure as the cost of borrowing increases. It reduces aggregate spending, and therefore, aggregate demand.
Detailed explanation-4: -The correct option is: D. A reduction in the growth rate in foreign countries compared to the United States that causes the aggregate demand to fall.