If a fall in foreign income decreases domestic aggregate expenditures by 20, the AD curve will:
A)shift left by more than 20.
B)shift left by less than 20.
C)shift left by exactly 20.
D)not shift at all.

Question

Quizplus · Accepted Answer

A decrease in foreign income leads to a decrease in domestic aggregate expenditures, which in turn causes the aggregate demand (AD) curve to shift to the left. The shift is typically more than the initial decrease in expenditures due to the multiplier effect, where an initial change in spending leads to further decreases in income and spending.

If a Fall in Foreign Income Decreases Domestic Aggregate Expenditures