1. Identify which expenditure category each of the following will directly impac
ID: 1189740 • Letter: 1
Question
1. Identify which expenditure category each of the following will directly impact, and also which direction the U.S. aggregate demand curve will shift as a result.
a. Incomes increase abroad.
b. Interest rates decrease.
c. Congress passes a permanent tax cut.
d. Firms become more optimistic about the outlook for the economy.
e. Stocks traded on the NASDAQ market lose 40 percent of their value in one month's time.
2. How does an increase in aggregate demand affect output, unemployment, and the price level in the short run?
Explanation / Answer
Incomes increase abroad – It will impact the net exports as the income earned abroad if foreign income and the demand curve will shift upward (right).
Interest rates decrease – It will impact the personal consumption and investment expenditure, as interest rates are low people will invest less and consume more the demand curve will again shift upward and right.
Congress passes a permanent tax cut – It will impact the personal consumption as people will have more disposable income for expenditure and the overall demand increases and the demand curve shifts upward and right.
Firms become more optimistic about the outlook for the economy – This will impact the business investments expenditures of the economy, the demand will remain constant.
Stocks traded on the NASDAQ market lose 40 percent of their value in one month's time – This will impact the personal investment expenditure, as people will start selling their investments. Demand will fall and shift downward and left.
Aggregate demand means the overall demand in an economy. If the demand increases then the supply also does, hence there is an increase in the production and output. The increase in demand leads to increase in supply to cater to the demand. Hence new employment opportunities are created leading the unemployment to decrease. As the demand increases the goods and services are more wanted than ever, hence this leads to increase in price as well as.
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