FIGURE 22-4
-Refer to Figure 22-4. The rotation from AE0 to AE1 could be caused by
A) a higher net tax rate.
B) a lower net tax rate.
C) a balanced budget.
D) lower government purchases.
E) higher government purchases.

Question

FIGURE 22-4
-Refer to Figure 22-4. The rotation from AE0 to AE1 could be caused by
A) a higher net tax rate. 
B) a lower net tax rate. 
C) a balanced budget. 
D) lower government purchases. 
E) higher government purchases.

Quizplus · Accepted Answer

The rotation from AE0 to AE1 indicates an increase in aggregate demand, which could be caused by a lower net tax rate, making consumers and/or businesses more willing to spend. Lower government purchases would shift the aggregate demand curve to the left, resulting in a decrease in output and employment (a shift from AE0 to AE2). A balanced budget would not lead to any shift in the aggregate demand curve. Higher government purchases would shift the aggregate demand curve to the right, resulting in an increase in output and employment (a shift from AE0 to AE2).

FIGURE 22-4 -Refer to Figure 22-4. the Rotation from AE0 to AE1