ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A decrease in wealth
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Pessimistic consumer expectations
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Firms purchase capital stock
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Increased productivity of workers
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Consumer income abroad decreases
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Detailed explanation-1: -The tax cut, by increasing consumption, shifts the AD curve to the right.
Detailed explanation-2: -Changes in investment shift the aggregate demand curve to the right or left by an amount equal to the initial change in investment times the multiplier. Investment adds to the capital stock; it therefore contributes to economic growth.
Detailed explanation-3: -Factors that Cause Shifts in Aggregate Demand 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.
Detailed explanation-4: -Which of the following would most likely shift the aggregate demand curve to the right? An increase in stock prices that increases consumer wealth.
Detailed explanation-5: -A change in inflation changes the level of prices in the economy and thereby cause a movement along the AD curve rather than a shift. Therefore, the correct option is D, an increase in inflation.