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Homework answers / question archive / Which of the following could explain the shift shown in the graph above form AD to AD'? (Check all that apply
Which of the following could explain the shift shown in the graph above form AD to AD'? (Check all that apply.) A decrease in the desire among households to save The central bank attempts to cause a rise in the rate of inflation A trend toward pessimism among business people A decrease in government military outlays A general technological improvement
(b) The Central Bank attempts to cause a rise in the rate of inflation.
This can be explained below as:-
In the above graph AD shifts leftward to AD'
This shift in AD is leftward which means that aggregate demand has decreased.
So, let's see the options given above which will affect the aggregate demand.
Option (a) is wrong because decrease in desire among household's to save leads to increase and demand and rightward shift of the demand curve.
Option (c) is wrong because a trend among pessimism among business people leads to leftward shift of the supply curve.
Option (d) is wrong because decrease in government military outlays leads to rightward shift of the supply curve.
Option (e) is wrong because general technological improvement leads to rightward shift of the supply curve.
Option(b) is right because when central bank rises the inflation rate in the economy, goods become costlier for the consumers and because of this their demand falls and due to this the aggregate demand decreases in the economy which means leftward shift of the AD curve to AD'
So, option (b) is the right answer and other options are wrong.