The aggregate demand curve is shifted rightward by
A) an increase in tax rates.
B) an increase in the federal budget surplus.
C) an increase in government expenditure.
D) a decrease in government expenditure.

Question

Quizplus · Accepted Answer

An increase in government expenditure shifts the aggregate demand curve rightward, as it increases the overall amount of spending in the economy.

Answer: D
 A decrease in government expenditure shifts the aggregate demand curve leftward, as it decreases the overall amount of spending in the economy.

A) A decrease in tax rates would shift the aggregate demand curve rightward, as it would increase consumer disposable income and encourage spending. An increase in tax rates would shift the aggregate demand curve leftward, as it would decrease consumer disposable income and discourage spending.

B) An increase in the federal budget surplus would not shift the aggregate demand curve directly, as it is a measure of government revenues and expenditures rather than an actual expenditure or investment in the economy. However, changes in the federal budget surplus could indirectly affect the aggregate demand curve depending on how the government uses the surplus (e.g. investing in infrastructure may increase aggregate demand, while using it to pay down debt or reduce government expenditures may decrease aggregate demand).

The Aggregate Demand Curve Is Shifted Rightward by