What would shift aggregate demand (AD) to the right?

Question

BlackTom AI · Accepted Answer

A decrease in taxes raises households' disposable income and typically increases consumption, so lower taxes shift aggregate demand (AD) to the right.

1. Relevant knowledge and concepts
- Aggregate demand is AD = C + I + G + (X − M), where C = consumption, I = investment, G = government spending, X = exports, M = imports.
- A rightward shift in AD means total planned spending at every price level rises. Policies or shocks that increase C, I, G, or X, or that decrease M, shift AD right. Lower taxes are expansionary fiscal policy that increase disposable income and thus C (and often I via higher demand expectations).

2. Step-by-step reasoning
- Lower taxes → higher disposable income for households → higher consumption (C).
- Higher C directly raises AD because C is a component of AD.
- If investment or other components also respond positively to higher demand, the increase in AD can be amplified.

3. Calculation with intermediate steps (illustrative)
- Suppose initially: C = 500, I = 200, G = 300, X = 100, M = 150.
- Initial AD = 500 + 200 + 300 + (100 − 150) = 950.
- If lower taxes raise consumption by 40: new C = 540.
- New AD = 540 + 200 + 300 + (100 − 150) = 990.
- AD increased from 950 to 990, showing a rightward shift.

4. Why the correct answer is correct
- Lower taxes increase at least one AD component (C), so total AD increases. This directly corresponds to a rightward shift of the AD curve.

5. Why the other options are incorrect
- "a higher interest rate": higher rates raise borrowing costs, reducing I and often C (through higher loan costs), which lowers AD (leftward shift), so incorrect.
- "anything that decreases C, I, G, X, or increases M": those changes reduce AD (shift left), so incorrect.
- "all of these": cannot be correct because the first two alternatives would cause AD to fall, not rise.

6. Conclusion
The correct choice is "lower taxes," which matches the provided answer.

What would shift aggregate demand (AD) to the right?单项选择题

类似问题

What would lower aggregate demand (AD)?

Why is aggregate demand (AD) downward-sloping?

What would lower aggregate demand (AD)?

Why is aggregate demand (AD) downward-sloping?