Aggregate Demand and Aggregate Supply: Quiz

A decrease in business taxes will tend to

increase aggregate supply? Decrease aggregate supply and decrease aggregate demand? increase aggregate supply and demand?

Which of the following changes will shift AD1 to AD2?

A cut in personal and business taxes. Explanation :- A cut / decrease in personal and business taxes will increase the purchasing power of the people. It will increase the disposable income which will further increase the consumption expenditure component (C) of the aggregate demand and accordingly, the aggregate demand will increase in an economy which in turn will shift the aggregate demand (AD) curve rightwards from AD1 to AD2.

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

Input prices have increased.

The foreign purchases, interest rate, and real-balances effects explain why the

aggregate demand curve is downward-sloping.

If the dollar appreciates in value relative to foreign currencies, aggregate demand

decreases because net exports decrease. Foreign currency is now cheaper as compared to $ and Foreign country will inport less. Therefore, net Exports decreases and hence aggreagte demand

When national income in other nations decreases, aggregate demand in our economy

decreases because our exports will decrease.

Use the following graph to answer the next question. A shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n)

increase in investment spending. An increase in the export spending will shift the aggregate demand curve to the right and the new output will be at a higher price and higher output in the market.

The massive increase in government spending during World War II moved the economy in the span of a few short years from mass unemployment and price stability to "overfull" employment. This situation can be best illustrated in the figure above as a

shift from AD1 to AD2. An increase in government spending leads to rightward shift of aggregate demand curve. The massive incraese in government spending during World War II can be best illustrated in the figure above as a shifts from AD1 to AD2.

Suppose that oil prices increase sharply while the rate of growth in labor productivity declines. The combination of these two factors should

shift the short-run aggregate supply curve to the left.

A decrease in labor costs will cause aggregate

supply increase

Which of the following factors does not explain a movement along the AD curve?

the expenditure multiplier effect