An increase in consumer expenditures during the holiday season, a decrease in purchases of U.S. goods by foreigners, a tax increase, and a decline in new home starts are examples of:
A) a monetary policy.
B) an aggregate supply shock.
C) an aggregate demand shock.
D) expectations.
E) Ricardian equivalence.

Question

Quizplus · Accepted Answer

These are all examples of factors that can shift the aggregate demand curve, either to the left (decrease in purchases by foreigners, tax increase, decline in new home starts) or to the right (increase in consumer expenditures during the holiday season). This would cause a change in the overall level of output and inflation in the economy. A is incorrect because monetary policy refers to actions taken by the central bank to influence interest rates and the money supply. B is incorrect because an aggregate supply shock would refer to a sudden and unexpected event that changes the potential level of output in the economy, such as a natural disaster or a major technological breakthrough. D is incorrect because expectations would refer to how individuals and firms anticipate future economic conditions and adjust their behavior accordingly. E is incorrect because Ricardian equivalence is a theory that suggests that government deficits do not have a significant effect on aggregate demand because people will adjust their saving behavior in anticipation of future tax increases.

An Increase in Consumer Expenditures During the Holiday Season, a Decrease