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pts Refer to the figure to answer the following questions
pts Refer to the figure to answer the following questions. Price level (P) LRAS, LRAS SRAS ? E SRAS, D c AD2 AD Real GDP (Y) Based on the figure, which of the following would cause the aggregate demand curve to shift from AD, to AD,? The economy has been producing more than its full-employment output level and wages and input prices begin to rise. There is an increase in the price of oil There is an increase in the general price level that reduces real wealth There is a reduction in consumer confidence about future growth in the economy. There is a reduction in income tax rates,
Expert Solution
Ans 10) The aggregate demand curve to shift from AD2 to AD1 -
- There is a reduction in consumer confidence about future growth in the economy.
- This is the cause of demand curve shift leftward because Consumer spending is a major element of aggregate demand and economic growth. If confidence falls, this will tend to cause lower spending and reduce the rate of economic growth.
- Consumer confidence is a leading indicator. This means consumer confidence can give a good indication of future economic drop-off.
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