A shock to aggregate demand can be created
A) only by a shock to some element of the IS curve.
B) only by a shock to some element of the LM curve.
C) by a shock to either the IS curve or the LM curve.
D) by a shock to inflationary expectations that moves the price-adjustment schedule.
E) whenever some endogenous change in government spending policy is observed.

Question

Quizplus · Accepted Answer

A shock to aggregate demand can be created by changes affecting either the investment-savings (IS) curve, which represents equilibrium in the goods market, or the liquidity preference-money supply (LM) curve, which represents equilibrium in the money market. Changes in factors such as investment, government spending, taxes, money supply, or demand for liquidity can shift these curves, thereby affecting aggregate demand.

A Shock to Aggregate Demand Can Be Created