Figure 5.3 -Refer to Figure 5.3.All else equal,an increase in net exports accompanied by a decrease in expected future profits would cause which of the following shifts? A) S₁ to S₂ and D₁ to D₂ B) S₂ to S₁ and D₁ to D₂ C) S₁ to S₂ and D₂ to D₁ D) S₂ to S₁ and D₂ to D₁

Question

Quizplus · Accepted Answer

An increase in net exports would shift the aggregate demand curve (D) to the right (D₂), as higher net exports represent an increase in spending. Meanwhile, a decrease in expected future profits would shift the aggregate supply curve (S) to the left (S₂), as firms reduce production levels. The combination of these two shifts would result in a movement from point A to point B in the figure. Therefore, the correct answer is D, as it represents a shift to the left in both the supply and demand curves.

Figure 5.3 -Refer to Figure 5.3.All Else Equal,an Increase in Net Exports