A shift of the AD-curve to the left can be caused by
A)a decrease in taxes
B)an increase in business and consumer confidence
C)an increase in nominal money supply
D)a decrease in government transfer payments
E)a decrease in money demand

Question

Quizplus · Accepted Answer

A decrease in government transfer payments will reduce disposable income and lower consumption expenditure. This will lead to a decrease in aggregate demand and a shift of the AD-curve to the left. A decrease in taxes (choice A) would increase disposable income and consumption, thus shifting AD to the right. An increase in business and consumer confidence (choice B) would also increase consumption and investment, shifting AD to the right. An increase in nominal money supply (choice C) would lower interest rates and stimulate investment and consumption, also shifting AD to the right. Finally, a decrease in money demand (choice E) would lead to lower interest rates and higher investment, shifting AD to the right.

A Shift of the AD-Curve to the Left Can Be