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

Question

Quizplus · Accepted Answer

Option A: A tax increase would decrease aggregate demand, leading to a decrease in aggregate output.
Option B: A cut in interest rates would increase investment and consumption spending, leading to an increase in aggregate demand and aggregate output.
Option C: A spike in world oil prices would increase the cost of production for firms, leading to a decrease in aggregate supply and aggregate output.
Option D: A cut in government spending would decrease aggregate demand, leading to a decrease in aggregate output.

Therefore, only option B, a cut in interest rates, would lead to higher aggregate output.

Use the Aggregate Supply - Aggregate Demand Model to Determine