When the government decreases spending, the:
A)AD curve will shift to the left.
B)SRAS curve will shift to the left.
C)budget balance will move toward a deficit.
D)government debt will increase.

Question

Quizplus · Accepted Answer

When the government decreases spending, it reduces the amount of money circulating in the economy, which leads to a decrease in aggregate demand (AD). This shift causes the AD curve to shift to the left. Choice B is incorrect because changes in government spending do not affect the supply side of the economy, so SRAS should not be affected. Choice C and D are also incorrect because they are outcomes of the change in spending but do not explain why spending affects the economy.

When the Government Decreases Spending, The