In the aggregate demand-aggregate supply model, everything else remaining unchanged, a decrease in government spending shifts the ____curve to the_____ .
A)aggregate demand; right
B)aggregate demand; left
C)aggregate supply; right
D)aggregate supply; left

Question

Quizplus · Accepted Answer

A decrease in government spending will lead to a decrease in the overall demand for goods and services in the economy. This will cause a leftward shift in the aggregate demand curve, as there will be lower demand for goods and services across all price levels. This is represented by a movement along the fixed aggregate supply curve, resulting in a decrease in both output and the price level.

In the Aggregate Demand-Aggregate Supply Model, Everything Else Remaining Unchanged