In addition to government purchases or changes in taxes, demand shocks in the economy can increase or decrease GDP, leading to a fall or rise in the trade balance. Which of the following would NOT represent a demand shock?
A) a change in household wealth leading to a rise in consumption expenditures
B) a rise in inflation
C) a change in the marginal propensity to import, causing imports to rise
D) an increase in technology, causing investment spending to rise

Question

Quizplus · Accepted Answer

A rise in inflation would not represent a demand shock as it is a result of changes in the supply side of the economy, rather than changes in consumer or investor demand. Demand shocks typically involve changes in consumer spending, investment spending, or government spending.

In Addition to Government Purchases or Changes in Taxes, Demand