Question

Which of the following would not shift the aggregate demand curve? rev: 06_12_2018 Multiple Choice Foreign-exchange rates Real interest rates Income tax rates Productivity rates

Answer 1

Answer:

All of the mentioned factors  will cause a shift in the aggregate demand curve either leftward or to the right

Explanation:

The demand curve is the level of consumption consumers are able to put up to match the available supplies within an economy at any period in time.

This curve is either increasing positively or declining subject to factors other than supply.

Foreign Exchange Rates

Foreign exchange play a strong role in deciding if a demand for a product would increase or decrease subject to changes in the value of the USD compared to other international currencies.

if a product Raw Material is sourced from Taiwan, and for some reasons of stability in Taiwan there is an improvement in the conversion of their currency vs the USD, this would mean the Per Ton cost of such raw material to USA will increase. And which in turn will lead to Price increases to cover the cost of the Products.

The effect of this is demand will shrink

If it was the reverse as well, there is likelihood Demand will improve from the USA consumer point of view.

Real Interest Rates

Interest rates will determine how much one would wish to invest in a product. if Interest rates are favorable then the Cost of doing business will be less whilst Margin and profitability will improve. But if interest rate is adverse to business, spending will be discouraged so as to retain profitability within the Business

This factor plays a pivotal role in the shift in aggregate demand curve

Income tax rates

If the income tax rate is raised disposable income is weakened and Demand power also declines

If otherwise, it serves as a potential tool for increasing the demand of a product

Productivity Rates

This builds efficiency to the way businesses operate it doesn't directly, and the way consumers spend. Thus, it has the capacity of widening the Margin for the average investor through his demand for that product.