A spending shock
A) causes unemployment and inflation to change in the same direction
B) results in a movement along the AD curve
C) shifts the AS curve
D) first affects the economy through the money market
E) causes equilibrium GDP to change at each price level

Question

Quizplus · Accepted Answer

A spending shock causes a shift in aggregate demand (AD), which leads to a change in equilibrium GDP at each price level. This is because a shock to spending can influence consumer and business decisions on how much product to buy or produce. This shift does not directly affect the AS curve or the money market. Additionally, the impact on unemployment and inflation can vary depending on a range of factors, so it cannot be assumed that they will always change in the same direction. Therefore, B and C can also be ruled out as correct answers.

A Spending Shock