A reduction in government transfers _____, therefore shifting the aggregate demand curve to the _____.
A) increases labor costs to companies, increasing investment; left
B) decreases government purchases of goods and services, decreasing consumption; right
C) increases the marginal propensity to save, decreasing consumption; right
D) decreases disposable income and consumption; left

Question

Quizplus · Accepted Answer

Reduction in government transfers decreases disposable income and consumption, which shifts the aggregate demand curve to the left. Option A is incorrect because it conflates a reduction in government transfers with an increase in labor costs, which are unrelated. Option B is incorrect as it describes a decrease in government purchases, not transfers. Option C is incorrect because an increase in the marginal propensity to save would also shift the aggregate demand curve to the left.

A Reduction in Government Transfers _____, Therefore Shifting the Aggregate