Which of the following would likely cause a downward parallel shift in the AE curve and a leftward shift in the AD curve?
A)an increase in the business confidence of firms
B)a reduction in government purchases
C)an decrease in the MPC
D)a decrease in the price level
E)an increase in the price level

Question

Quizplus · Accepted Answer

A reduction in government purchases would cause a decrease in aggregate demand (AD) as there is less spending in the economy. This would cause a leftward shift in the AD curve. At the same time, it would cause a downward parallel shift in the AE curve as there is now less planned expenditure at every level of income due to the decrease in government purchases. The other options would not lead to both a downward parallel shift in the AE curve and a leftward shift in the AD curve.

Which of the Following Would Likely Cause a Downward Parallel