Use the Aggregate Supply- Aggregate Demand model to determine which of the following will lead to higher prices
A)a tax increase.
B)an increase in interest rates.
C)a fall in world oil prices.
D)an increase in government spending.

Question

Quizplus · Accepted Answer

According to the Aggregate Demand-Aggregate Supply model, an increase in government spending shifts the Aggregate Demand curve to the right, which leads to higher prices. This is because the increase in spending increases the demand for goods and services, causing suppliers to raise prices to meet the increased demand. A tax increase and an increase in interest rates both reduce aggregate demand, while a fall in world oil prices reduces production costs, leading to lower prices.

Use the Aggregate Supply- Aggregate Demand Model to Determine Which