Question

The government of Euroland is considering increasing government spending to avoid a recession. What is the most likely effect on aggregate demand in Euroland?

Answer 1

The effect on the aggregate demand (AD) in Euroland is there will be a rightward shift in the AD curve.

Step-by-step explanation:

Recession means decrease in economy and countries wealth. Aggregate demand (AD) is the total amount of products and services purchased by the consumers in specific period. The AD is changed to alter the relationship with aggregate supply (AS), and this change in AD is called a "shift."

Automatic stabilizers will shift the aggregate demand curve to the right, increasing real output during recession. The government of Euroland decided to increase the government spending to avoid recession. The effect on the aggregate demand (AD) in Euroland is there will be a rightward shift in the AD curve.