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    Aggregate Demand Behavior

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    Explain how each of the following changes would shift the aggregate demand curve.

    1) Increase in government spending
    2) Increase in consumer debt
    3) Decrease in the nominal money supply by the Federal Reserve
    4) Decrease in the currency exchange rate (R)
    5) Increasing in consumer wealth

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    Solution Preview

    Aggregate Demand Curve
    General concept: A shift of the aggregate demand (AD) curve to the right means increase in the aggregate demand. A shift to the left means a decrease in the aggregate demand.

    1) Increase in government spending
    Increase in government spending will stimulate economic activity. This will result to increase in the level of employment which will eventually result to an increased demand for goods and services. Therefore, an increase in government spend will result to a shift the aggregate demand curve to the right, meaning there would be an increase ...

    Solution Summary

    This solution shows the behavior of the aggregate demand curve given the following scenarios: 1) Increase in government spending, 2) Increase in consumer debt, 3) Decrease in the nominal money supply by the Federal Reserve, 4) Decrease in the currency exchange rate (R), and 5) Increasing in consumer wealth.

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