Which of the following circumstances will shift AD to the right,other things being equal?
A)when the government budget deficit increases because transfer payments fell
B)when the government budget deficit increases because taxes rose
C)when the government budget deficit increases because GST revenue rose
D)when the government budget deficit increases because government purchases rose

Question

Quizplus · Accepted Answer

An increase in government purchases would directly increase the level of AD. The other choices are not likely to have a direct impact on AD. Transfer payments falling (A) would decrease the level of AD, whereas a rise in taxes (B) would decrease disposable income, leading to lower consumption and a decrease in AD. The rise in GST revenue (C) may give the government more fiscal room to increase spending, but it does not directly affect AD.

Which of the Following Circumstances Will Shift AD to the Right,other