What Happens to Aggregate Demand If People Want to Save

question 219

Multiple Choice

What happens to aggregate demand if people want to save more for retirement and the government raises taxes?

• A) Aggregate demand shifts right.
• B) Aggregate demand shifts left.
• C) If people save more, aggregate demand shifts right; if the government raises taxes, aggregate demand shifts left.
• D) If people save more, aggregate demand shifts left; if the government raises taxes, aggregate demand shifts right.

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Definitions:

Unit Elastic

A situation when a change in price leads to an equal proportional change in quantity demanded or supplied.

Elasticity of Demand

A gauge of the degree to which a change in price impacts the demanded amount of a good or service.

Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, typically expressed as a percentage.

Slightly Elastic

Slightly elastic refers to a situation where a small change in price leads to a relatively small change in the quantity demanded or supplied.