Multiple Choice
Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?
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16. Aggregate Demand and Aggregate Supply Analysis
Aggregate Demand
Multiple Choice
Which of the following is included in the aggregate demand for goods and services?
A
The supply of labor in the economy
B
The quantity of money held by banks
C
The level of technological advancement
D
Government spending on infrastructure
Verified step by step guidance1
Understand that aggregate demand (AD) represents the total demand for all goods and services in an economy at a given overall price level and in a given period.
Recall the components of aggregate demand, which are typically expressed as: \(AD = C + I + G + (X - M)\), where \(C\) is consumption, \(I\) is investment, \(G\) is government spending, and \((X - M)\) is net exports (exports minus imports).
Analyze each option to see if it fits into one of these components: the supply of labor is related to aggregate supply, not demand; the quantity of money held by banks relates to monetary factors but not directly to aggregate demand; the level of technological advancement affects productivity and aggregate supply, not demand.
Recognize that government spending on infrastructure is a direct component of \(G\) in the aggregate demand formula, meaning it is included in aggregate demand.
Conclude that among the options given, government spending on infrastructure is the correct choice because it directly increases aggregate demand by increasing government expenditure on goods and services.
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