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Based on the figure above, the aggregate demand curve will shift from AD0 to AD1 when
A)the Federal Reserve lowers the interest rate.
B)government expenditure decreases.
C)the price level rises.
D)potential GDP increases.
E)the price level falls.

Question

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Based on the figure above, the aggregate demand curve will shift from AD0 to AD1 when
A)the Federal Reserve lowers the interest rate. 
B)government expenditure decreases. 
C)the price level rises. 
D)potential GDP increases. 
E)the price level falls.

Quizplus · Accepted Answer

Lowering the interest rate by the Federal Reserve makes borrowing cheaper, encouraging spending and investment, which increases aggregate demand and shifts the curve from AD0 to AD1.

- Based on the Figure Above, the Aggregate Demand Curve Will