In an Aggregate Demand-Aggregate Supply Diagram, Equal Decreases in Government

question 77

Multiple Choice

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will

• A) shift the AD curve to the right.
• B) increase the equilibrium GDP.
• C) not affect the AD curve.
• D) shift the AD curve to the left.

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Definitions:

Open Economy

An economy that engages in international trade, allowing goods, services, and capital to move freely across its borders.

National Saving

National saving is the sum of private and public savings in an economy, essentially the portion of national income that is not spent on consumption or government expenditure.

Consumption

The use of goods and services by households. It includes spending on durable goods, nondurable goods, and services.

Loanable Funds

The market where savers supply funds for loans to borrowers, often illustrated by the supply and demand for loans.