Exhibit 22-1 Refer to Exhibit 22-1.Which of the following would be illustrated by a shift in aggregate demand from AD₀ to AD₁? A) an increase in government purchases, combined with a decrease in investment B) an increase in consumption, combined with an increase in exports C) an increase in business tax rates, combined with a decrease in consumer confidence D) faster growth rates by a major trading partner, combined with a decrease in stock market wealth

Question

Quizplus · Accepted Answer

A shift in aggregate demand from AD₀ to AD₁ indicates an increase in aggregate demand. This can be caused by an increase in consumption and exports, as illustrated by choice B. None of the other choices would result in an increase in aggregate demand. A decrease in investment (choice A) or an increase in business tax rates (choice C) would both decrease aggregate demand. Faster growth rates by a major trading partner (choice D) may increase exports, but the decrease in stock market wealth would likely decrease consumption and overall aggregate demand.