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Shifting Aggregate Demand quiz #1

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  • Which of the following factors will shift the aggregate demand curve to the right?
    Factors that shift aggregate demand to the right include lower interest rates, lower income taxes, increased government purchases, positive expectations about future income or profits, and an increase in net exports. These changes boost consumption, investment, government spending, or net exports, increasing overall aggregate demand.
  • Which of the following factors will shift the aggregate demand curve to the left?
    Factors that shift aggregate demand to the left include higher interest rates, higher income taxes, decreased government purchases, negative expectations about future income or profits, and a decrease in net exports. These changes reduce consumption, investment, government spending, or net exports, decreasing overall aggregate demand.
  • What happens to aggregate demand when expected future income increases?
    Aggregate demand increases because people are likely to spend more now, anticipating higher future income.
  • How do higher interest rates affect investment and aggregate demand?
    Higher interest rates discourage firms from borrowing for investment, leading to lower investment and a decrease in aggregate demand.
  • Why does a rise in income taxes lead to a shift in the aggregate demand curve?
    A rise in income taxes reduces disposable income, causing consumers to spend less and shifting aggregate demand to the left.
  • How do government purchases influence aggregate demand?
    An increase in government purchases directly raises aggregate demand, while a decrease lowers it.
  • What effect does a stronger domestic currency have on net exports and aggregate demand?
    A stronger domestic currency increases imports and decreases net exports, which reduces aggregate demand.
  • How do changes in relative growth rates between countries affect U.S. net exports?
    If the U.S. grows faster than other countries, imports rise and net exports fall, decreasing aggregate demand.
  • What is the difference between a movement along the aggregate demand curve and a shift of the curve?
    A movement along the curve is caused by changes in the price level, while a shift is caused by changes in factors like interest rates, taxes, or expectations.
  • Which component of aggregate demand is directly affected when firms expect higher future profits?
    Investment increases when firms expect higher future profits, which raises aggregate demand.