Question

In 2009 Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right? a. only the increased funding for states b. only the tax cuts c. both the increased funding for states and the tax cuts d. neither the increased funding for states nor the tax cuts

Answer 1

Answer:

The best answer for the question: Which of these shifts aggregate demand right?, would be, C: Both the increased funding for states and the tax cuts.

Explanation:

After the terrible financial crisis of 2007-2008, in which a strong recession took place, the U.S government, and especially Congress, began to issue policies to encourage spending, boost the economy, help individuals and businesses recover their spending capacities and also help individuals get re-employed. All of these things had gone down with the crisis as it affected not just the banking and financial systems, but also brought unemployment, and less monetary spending both from individuals and from businesses.

Aggregate demand, is defined in economics as the way to measure how much are goods and services produced demanded, and especially, how much individuals and businesses will spend, given some standard conditions, for those demands and goods. One of those standard conditions is, the fixed prices. Because of the crisis, prices rose, costs rose, and people had less and less financial capacity, not to mention that banks were incapable of lending money and businesses were also affected. Thus, aggregate demand fell.

But in 2009, Congress enacted an increase in funding for states, and also tax cuts, both conditions necessary to increase aggregate demand, and thus shift it to the right. With state funding, states were able to initiate, or ree-start programs that encouraged spending, entrepeneurship and strengthening of banks and businesses, re-start employment for individuals, and rise the levels of spending capacity. With the tax cuts, both individuals and businesses were able to have more money available for spending. All these shifted the aggregate demand.