Which of the following policies shifts the AD curve the farthest leftward?
A) a rise in taxes of $10 billion
B) a cut in taxes of $10 billion
C) a decrease in government expenditure of $10 billion
D) a decrease in both government expenditure and taxes of $10 billion

Question

Quizplus · Accepted Answer

A decrease in government expenditure directly reduces aggregate demand by reducing government spending, one of the components of aggregate demand. This has a more immediate and direct impact on shifting the AD curve leftward compared to tax changes, which affect aggregate demand indirectly through changes in consumer and business spending.

Which of the Following Policies Shifts the AD Curve the Farthest