Question

Which of the following is true in regards to the total expenditures curve?

1) It will shift downward if investments rise
2) It will shift upward if exports rise
3) It will shift downward if investing rise
4) It will shift upward if consumption rises

Answer 1

Of the given statements about the total expenditures curve, which is akin to the aggregate demand curve, it will shift upward if exports or consumption rises. This is because both exports and consumption are components of aggregate demand that increase total spending in the economy. Option 2 is correct answer.

Step-by-step explanation:

The student's question is related to the shifts in the total expenditures curve or the aggregate demand (AD) curve in the context of economics. When we refer to the aggregate demand curve, several components influence its shift: consumption (C), investment (I), government spending (G), and net exports (X-M). A shift in the AD curve affects the equilibrium quantity of output and the price level in the economy.

From the options provided, the correct statements are:

1. It will shift upward if exports rise: This is consistent with economic principles because exports are a component of aggregate demand. When exports increase, it indicates higher foreign demand for domestic goods, which increases total spending in the economy.
2. It will shift upward if consumption rises: Consumption is a major part of aggregate demand. An increase in consumption would increase total spending in the economy, causing the AD curve to shift to the right (or upward).

Contrary to the options suggesting that investment would cause the curve to shift downward, an increase in investment spending actually makes the AD curve shift to the right (or upward), not downward, because investment is another component that fuels total spending and aggregate demand.