An increase in government expenditure shifts the AD curve_________ and an increase in taxes shifts the AD curve_________ .
A) rightward; rightward
B) leftward; rightward
C) leftward; leftward
D) rightward; leftward

Question

Quizplus · Accepted Answer

An increase in government expenditure means that the government is spending more money, causing an increase in aggregate demand (AD) since there is a direct relationship between government expenditure and consumer demand. Therefore, the AD curve shifts rightward.

On the other hand, an increase in taxes means that people have less disposable income, and they spend less, causing a decrease in aggregate demand. This means the AD curve shifts leftward.

An Increase in Government Expenditure Shifts the AD Curve_________ and an Increase