All other things remaining equal, which of the following changes would cause the
ID: 1121851 • Letter: A
Question
All other things remaining equal, which of the following changes would cause the AD curve to become steeper? To become flatter?
a. an increase in the interest-rate responsiveness of autonomous consumption
b. an increase in the interest-rate responsiveness of real money demand
c. an increase in the marginal tax rate
d. an increase in the marginal propensity to import
e. an increase in the income responsiveness of real money demand
All other things remaining equal, which of the following changes would cause the AD curve to move to the right? To the left? Leave it unchanged?
f. an increase in autonomous net exports (NXa)
g. an increase in the nominal money supply
h. a decrease in business confidence
i. an increase in autonomous taxes
j. an increase in the interest rate
Explanation / Answer
All other things remaining equal, which of the following changes would :
1) cause the AD curve to become steeper?
Solution: an increase in the interest-rate responsiveness of real money demand
Explanation: When the interest responsiveness of the demand for money becomes larger the AD curve is steeper
2) cause the AD curve to become flatter?
Solution: an increase in the income responsiveness of real money demand
Explanation: The smaller is the interest responsiveness of the demand for money and higher is the interest responsiveness of investment demand, AD curve is flatter
3) cause the AD curve to move to the right?
Solution: an increase in autonomous net exports (NXa)
Explanation: NX(e), i.e. exports less imports, is a function of the real exchange rate which will lead to a shift in the aggregate demand curve is
4) cause the AD curve to move to the left?
Solution: an increase in the interest rate
Explanation: Interest rates increase causes AD curve shift to the left as there will be less demand