Question

If Congress passes a plan to cut the national debt in half, then:

1) there is no change in the AD curve as SRAS has decreased.
2) AD shifts right and output would increase.
3) AD shifts right and output would decrease.
4) AD shifts left and output would increase.
5) AD shifts left and the output would decrease.

Answer 1

3) AD shifts right and output would decrease.

Step-by-step explanation:

Aggregate demand (AD) is the total number of goods demanded in an economy in a period of time.

If Congress decides to cut the National debt (or accumulated debt of the government) by half, this will make interest rates lower and will encourage investment from the private sector.

The shifting to the right occurs when these components; consumption spending and investment spending increases due to cut in National debt.

The AD curve will shift back to the left as these components decreases.