Multiple Choice
If an economy experiences a decrease in the money supply, what is most likely to happen to short-run unemployment?
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1. Introduction to Macroeconomics
Introduction to Economics
Multiple Choice
Which of the following decreases aggregate demand and shifts the AD curve leftward?
A
An increase in government spending
B
An increase in interest rates
C
A decrease in taxes
D
A rise in consumer confidence
Verified step by step guidance1
Understand that aggregate demand (AD) represents the total quantity of goods and services demanded across all levels of an economy at a given overall price level and in a given period.
Recall that factors which increase spending by households, businesses, or the government tend to increase aggregate demand, shifting the AD curve to the right, while factors that reduce spending decrease aggregate demand, shifting the AD curve to the left.
Analyze each option: an increase in government spending increases AD (shifts right), a decrease in taxes increases disposable income and thus AD (shifts right), a rise in consumer confidence encourages more spending, increasing AD (shifts right).
Recognize that an increase in interest rates makes borrowing more expensive and saving more attractive, which tends to reduce consumption and investment spending, thereby decreasing aggregate demand and shifting the AD curve to the left.
Conclude that among the options, only an increase in interest rates decreases aggregate demand and shifts the AD curve leftward.
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