a. All European countries experience an economic expansion, raising incomes in e

Question

a. All European countries experience an economic expansion, raising incomes in each of the European countries.

This will cause a decrease in aggregate demand, shifting the aggregate demand curve to the left.

This will cause a movement along the aggregate demand curve to the right, showing an increase in the quantity of real GDP demanded.

This will cause a movement along the aggregate demand curve to the left, showing a decrease in the quantity of real GDP demanded.

This will cause an increase in aggregate demand, shifting the aggregate demand curve to the right.

b. The government decides to decrease the amount it spends on the military.

This will cause a decrease in aggregate demand, shifting the aggregate demand curve to the left.

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This will cause a movement along the aggregate demand curve to the left, showing a decrease in the quantity of real GDP demanded. This will cause an increase in aggregate demand, shifting the aggregate demand curve to the right. This will cause a movement along the aggregate demand curve to the right, showing an increase in the quantity of real GDP demanded.

This will cause a decrease in aggregate demand, shifting the aggregate demand curve to the left.

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Explanation / Answer

a. This will cause an increase in aggregate demand, shifting the aggregate demand curve to the right.

Because increase in income increases the demand of good and services in the Europian economy. So, aggregate demand increases.

b. This will cause a decrease in aggregate demand, shifting the aggregate demand curve to the left.

Decrease in government spending causes leftward shift of aggregate demand.

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