Question

Widespread fear of depression on the part of consumers.

-Which ceteris paribus change could have caused the shift?:

Answer 1

Correct Answer:

Increase in government spending

Or

Decrease in tax

Or

Decrease in interest rate / increase in money supply

When government spending will take place, then it will cause new jobs to be created that will increase employment. AD will also be shifted to the right. It will make positive outlook towards the economy among the consumers. Decrease in tax, will also increase the disposable income and people will spend more. It will also make a shift in AD to the right to show that people are thinking positively towards the economy.

Increase in money supply, will also increase consumers' spending and made them think positively towards the economy. It will make a shift in aggregate demand (AD) to the right.