ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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an increase in the national income of major trading partners
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a continuous decrease in the implicit GDP deflator
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a decrease in government subsidy on production.
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a decrease in firms’ desire to invest
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Detailed explanation-1: -Conversely, a decline in wealth usually leads to lower aggregate demand. When consumers are feeling good about the economy, they tend to spend more and save less.
Detailed explanation-2: -The correct answer to the given question is option c. An increase in income taxes. An increase in income taxes leads to decrease in disposable income for consumers thereby dampening the aggregate demand for goods and services.
Detailed explanation-3: -Any change in government purchases, all other things unchanged, will affect aggregate demand. An increase in government purchases increases aggregate demand; a decrease in government purchases decreases aggregate demand.
Detailed explanation-4: -The reduction in aggregate demand or supply will cause unemployment to increase as the change in price level lead to a change in output. The price level decreases when aggregate demand decreases and increases when aggregate supply decreases.