The figure above shows aggregate demand curves.
-Based on the figure above,the aggregate demand curve will shift from AD0 to AD1 when
A)potential GDP increases.
B)the price level falls.
C)the price level rises.
D)government expenditure decreases.
E)the Federal Reserve lowers the interest rate.

Question

The figure above shows aggregate demand curves.
-Based on the figure above,the aggregate demand curve will shift from AD0 to AD1 when
A)potential GDP increases. 
B)the price level falls. 
C)the price level rises. 
D)government expenditure decreases. 
E)the Federal Reserve lowers the interest rate.

Quizplus · Accepted Answer

The aggregate demand curve shifts to the right (from AD0 to AD1) when there is an increase in overall demand in the economy. Lowering the interest rate by the Federal Reserve makes borrowing cheaper, encouraging spending and investment, which increases aggregate demand.

The Figure Above Shows Aggregate Demand Curves