Refer to the graph shown. In 1975 U.S. President Gerald Ford instituted a large
ID: 1163722 • Letter: R
Question
Refer to the graph shown. In 1975 U.S. President Gerald Ford instituted a large tax cut. At the same time, the Fed expanded the money supply. The effect of these policies on the AD curve is best shown as a movement from:
Which one is the righ answer ?
Refer to the graph shown. In 1975 U.S. President Gerald Ford instituted a large tax cut. At the same time, the Fed expanded the money supply. The effect of these policies on the AD curve is best shown as a movement from: AD1 ADO AD2 Real output A to B O DtoA O A to D B to AExplanation / Answer
A large tax cut increases the disposable income. So the aggregate demand is increased. At the same time, money supply is increased. As a result interest rate will be decreased. People want to consume more instead of saving at a low-interest rate. So aggregate demand will be increased. In both cases, AD curve will shift to the right.
The shift from D to A indicates demand is increased.
Movement along the demand curve is not possible as demand is changed not by the price change. Other things affect demand.
The second option is correct.