The aggregate demand curve shifts to the left when
A)aggregate prices rise.
B)there is a drop in the foreign exchange value.
C)taxes decrease.
D)when the amount of money in the economy falls.

Question

Quizplus · Accepted Answer

A decrease in the amount of money in the economy will lead to a decrease in consumer spending, investment, and government spending. This will result in a decrease in aggregate demand and a shift to the left on the aggregate demand curve. Rising aggregate prices (A) would result in a movement along the aggregate demand curve, rather than a shift. A drop in the foreign exchange value (B) would affect the net exports component of aggregate demand and would also result in a movement along the aggregate demand curve, rather than a shift. Taxes decreasing (C) could potentially increase aggregate demand, but it would depend on how individuals and firms respond to the change, so it is not a definitive shift to the left or right.

The Aggregate Demand Curve Shifts to the Left When