A reduction in government transfers _____,thereby shifting the aggregate demand curve to the _____.
A) increases Canadian costs to companies,increasing investment;left
B) decreases government purchases of goods and services,decreasing consumption;right
C) increases the marginal propensity to save,decreasing consumption;right
D) decreases disposable income and consumption;left

Question

Quizplus · Accepted Answer

Government transfers refer to payments made by the government to individuals, such as social security or welfare payments. By reducing government transfers, disposable income (income after taking taxes and transfers into account) decreases. This results in a decrease in consumption and a shift of the aggregate demand curve to the left. Therefore, option D is the correct choice. Option A is incorrect because it assumes that a reduction in government transfers increases investment, which is not necessarily true. Option B is incorrect because it refers to a decrease in government purchases of goods and services, which is different from a reduction in transfers. Option C is incorrect because it assumes that an increase in the marginal propensity to save decreases consumption, which is not always true.

A Reduction in Government Transfers _____,Thereby Shifting the Aggregate Demand