Question 23 1 pts Suppose that the Central Bank of the country of Keynesland dec

Question

Question 23 1 pts Suppose that the Central Bank of the country of Keynesland decreases the supply of money; at the same time, the governmet of Keynesland passes a new investment tax credit. How would each policy affect the aggregate demand (AD)? O The money supply decrease would shift the AD to the left; the new investment tax credit would shift AD to the right. Both events would shift the AD to the right. Both events would shift the AD to the left. O The money supply decrease would shift the AD to the right; the new investment tax credit would shift AD to the left.

Explanation / Answer

23. Option 1

Explanatio: A decrease in the money supply would create a credit crunch ( lack of credit) in the economy which will reduce the demand for goods and services. So, the AD curve will shift towards the left. However, an investment tax credit will result in higher investment spending which will increase demand for goods and services. So, the AD curve will shift towards the right.

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