ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Consumer wealth
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The price level
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Capital stock
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Interest rates
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Tax revenues
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Detailed explanation-1: -a) Decline in consumer wealth is possible to be the aftermath of the drop in prices on the stock market, thus aggregate demand will fall. Wealth is a higher measure of the ability to purchase than income. If overall wealth decreases people will consume less thus aggregate demand decreases.
Detailed explanation-2: -A reduction in investment would shift the aggregate demand curve to the left by an amount equal to the multiplier times the change in investment.
Detailed explanation-3: -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-4: -An increase in wealth will induce people to increase their consumption. The consumption component of aggregate demand will thus be greater at lower price levels than at higher price levels.
Detailed explanation-5: -Question: A decline in the stock market, which makes consumers poorer, would cause the aggregate demand curve to shift to the left.