Identify whether each of the following policy actions shifts the AD curve to the left or the right. AD curve shifts left AD curve shifts right A decrease in government purchases A decrease in unemployment compensation A fiscal policy action that aims at reducing the effects of a recession A tax cut
Added by Marina L.
Close
Step 1
A decrease in government purchases directly reduces aggregate demand. Government spending is a component of aggregate demand ($AD = C + I + G + NX$), so a decrease in G leads to a decrease in AD. A decrease in unemployment compensation reduces disposable income Show more…
Show all steps
Your feedback will help us improve your experience
Achintya Suden and 87 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
(Related to Solved Problem 13.1 on page 438 ) Explain whether each of the following will cause a shift of the AD curve or a movement along the AD curve. a. Firms become more optimistic and increase their spending on machinery and equipment. b. The federal government increases taxes in an attempt to reduce a budget deficit. c. The U.S. economy experiences 4 percent inflation.
Aggregate Demand and Aggregate Supply Analysis
Aggregate Demand
In a Keynesian framework, using an AD/AS diagram, which of the following government policy choices offer a possible solution to recession? Which offer a possible solution to inflation? a. A tax increase on consumer income. b. A surge in military spending. c. A reduction in taxes for businesses that increase investment. d. A major increase in what the U.S. government spends on healthcare.
Crystal W.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD