Question 7 A tax cut government expenditures shift aggregate

Question 7 A tax cut... government expenditures shift aggregate demand right. Owill shift aggregate demand left while increase in government expenditures shift aggregate demand right. O will shift aggregate demand right while increase in government expenditures shift aggregate demand left. O and an increase in government expenditures shift aggregate demand left.

Solution

Ans : A tax cut and an increase in government expenditures shift aggregate demand right.

Explanation :

A tax cut leads increase in disposable income. As a result consumption spending and invesment will increase in the economy as a whole. Aggregate demand will increase through multiplier process when there is an increase in government spending.Both a tax cut and an increase in government spending are known as fiscal stimulus which shifts aggregate demand curve to the right.