Question

Aggregate demand shifts right if a. government purchases increase and shifts left if stock prices rise. b. government purchases increase and shifts left if stock prices fall. c. government purchases decrease and shifts left if stock prices rise. d. government purchases decrease and shifts left is stock prices fall.

Answer 1

Answer:

The correct answer is option b.

Explanation:

Aggregate demand represents the overall demand of goods and services in the economy in a year. It is comprised of consumption spending, investment, government spending, and net exports.

An increase in the government spending will increase the aggregate demand, so the aggregate demand curve will shift to the left.

A decrease in the stock prices, on the other hand, will cause the aggregate demand to fall, shifting the curve to the left. This happens because decrease in stock prices causes the wealth of the investors to decline. The consumer spending decreases and so does aggregate demand.