Question

Which government action will shift the aggregate demand left?

Select one:

a. a decrease in taxes

b. repealing an import tariff

c. signing a free trade agreement

d. a decrease in the money supply

Answer 1

Ans) Aggregate demand curve shifts to the left when aggregate demand decreases.

With decrease in taxes, disposable income of the people will increase. As a result, they will have more money to spend and aggregate demand will increase.

Repealing import tariff will make the imported goods cheaper. Aggregate demand will increase.

Free trade will also increase aggregate demand.

Decrease in money supply will lead to decrease in aggregate demand. And hence, AD curve will shift to the left.

Option d.