Which statement is incorrect? O Government Purchases will directly impact the ec
ID: 1152146 • Letter: W
Question
Which statement is incorrect? O Government Purchases will directly impact the economy A high marginal propensity to consume will have larger impact on aggregate demand than an economy with a low marginal propensity to consume Cutting Taxes will indirectly impact the economy The impact of cutting taxes on aggregate demand will not depend on the marginal propensity to consume The short-run aggregate supply curve shifts left if... O All of these answers are correct A permanent increase in capital Temporary destruction of capital Technology advancesExplanation / Answer
1. The statement that the impact of cutting taxes on aggregate demand will not depend on the marginal propensity to consume is incorrect.
Because tax cuts has greater influence on marginal propensity to consume than earlier.
A households propensity to consume depends upon long term financial prospects, responses to temporary and permanent tax cuts.
2. The short run aggregate supply curve shifts left if there is a temporary destruction of capital.
Shifts in short run aggregate demand curve occur when there there are changes in the quality of resource like the land, technology, labour etc.
A shift of the curve to the right occurs when there is improvements in the quality.
While the shifts to left occurs at the point of decreasing quality.
Hence when there is destruction in capital, the short run aggregate supply curve shifts to left.
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