In the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a:
A) Decrease in government spending or an increase in taxes
B) Decrease in taxes or an increase in government spending
C) Decrease in interest rates or a decrease in taxes
D) Decrease in saving or an increase in government spending

Question

Quizplus · Accepted Answer

A decrease in government spending or an increase in taxes will decrease aggregate expenditures as both actions reduce the amount of money consumers and businesses have available to spend. This leads to a decrease in consumption and investment spending, and therefore a decrease in aggregate expenditures. Note that options B, C, and D are incorrect as they either involve an increase in spending/taxes or do not directly affect aggregate expenditures.

In the Aggregate Expenditures Model of the Economy, a Downward