Suppose that the administration in charge of the government proposes increasing

Question

Suppose that the administration in charge of the government proposes increasing spending on infrastructure. Aggregate demand (AD) components include consumption (C), investment (1), government purchases (G) and net exports (NX). Analyze what the aggregate demand and aggregate supply model would predict here (assuming everything else remains the same) to answer the following three questions. 2. What likely happens to the AD curve? 1. Which component of AD is primarily affected? Government purchases (G) O Net exports (NX) Consumption (C) O Investment (1) AD shifts to the right (it increases). AD shifts to the left (it decreases). O AD stays in the same location. 3. What likely happens to the level of unemployment? unemployment remains the same unemployment increases O unemployment decreases O Previous @ Give Up & View Solution Q Check Answer O Next ] Exit -

Explanation / Answer

1) Government purchases/spending is primarily affected. (Option 1 is correct)

2) AD shifts to the right (it increases) - Option 1 is correct

3) Unemployment decreases (Option 3 is correct, output would increase and the employment would rise)

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