If the government announces a new increase in spending with no change in taxes,which of the following would most likely occur?
A) No change in the aggregate demand curve as well as no movement along it
B) A leftward shift of the aggregate demand curve
C) An upward movement along the aggregate demand curve
D) A rightward shift of the aggregate demand curve
E) A downward movement along the aggregate demand curve.

Question

Quizplus · Accepted Answer

When the government announces an increase in spending, it means there will be more spending in the economy resulting in increased demand for goods and services. This would cause an increase in aggregate demand and a shift to the right of the AD curve. The other options are unlikely as there is no change in taxes, and therefore there would not be any significant changes to consumer behaviour or inflation expectations.

If the Government Announces a New Increase in Spending with No