Spending on the war in Afghanistan is essentially categorized as government purchases.How do decreases in spending on the war in Afghanistan affect the aggregate demand curve?
A)They will move the economy down along a stationary aggregate demand curve.
B)They will move the economy up along a stationary aggregate demand curve.
C)They will shift the aggregate demand curve to the right.
D)They will shift the aggregate demand curve to the left.

Question

Quizplus · Accepted Answer

Decreases in spending on the war in Afghanistan will reduce government purchases and therefore shift the aggregate demand curve to the left. This is because the reduction in spending will lower the overall level of economic activity as households and firms have less income and government spending decreases. This shift will result in a lower level of output and a lower price level in the economy.

Spending on the War in Afghanistan Is Essentially Categorized as Government