Question

Note that, unless I say otherwise, when the problem says "Aggregate Supply" or "AS" it is referring to Short Run Aggregate Supply

1. What happens to the aggregate demand (AD) curve when there is an increase in government spending?
A. AD shifts left
B. AD shifts right
C. Movement up and to the left along the AD curve
D. Movement down and to the right along the AD curve

Answer 1

When there is an increase in government spending, the aggregate demand (AD) curve shifts to the right, leading to a higher quantity of goods and services demanded in the economy.

Step-by-step explanation:

When there is an increase in government spending, the aggregate demand (AD) curve shifts to the right. This means that at every price level, there is a higher quantity of goods and services demanded in the economy.For example, if the government increases spending on infrastructure projects, it creates more jobs and stimulates economic activity. This leads to an increase in consumer spending, investment, and exports, which in turn increases aggregate demand.Keywords: aggregate demand, government spending, AD curve, rightward shift, higher quantity, economic activity