Question

The Central Bank of Wiknam increases the money supply at the same time the Parliament of Wiknam passes a new investment tax credit. Which of these policies shift aggregate demand to the right?
a. both the money supply increase and the investment tax credit
b. the money supply increase but not the investment tax credit
c. the investment tax credit but not the money supply increase
d. neither the investment tax credit nor the money supply increase

Answer 1

Answer:

a. both the money supply increase and the investment tax credit 

Explanation:

When the Central Bank of Wiknam increases the money supply, it is known as expansionary monetary policy.

When the Parliament of Wiknam passes a new investment tax credit, it is known as expansionary fiscal policy.

A shift in the aggregate demand curve to the right is when aggreagrate demand increases.

When money supply is increased, disposable income increases, consumption increases and aggregate demand increases.

Investment tax credit reduces the amount paid as tax and therefore increases disposable income, consumption increases and aggregate demand increases.

I hope my answer helps you.