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Postby bhuyanpk » Fri Sep 18, 2015 6:35 am

Which of the following factors would be least likely to shift AD curve?
a) The price level increases
b) The federal Deficit expands
c) Expected inflation decreases
Pls can you provide exaplantion for each option?

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Re: Economics-III

Postby edupristine » Fri Sep 18, 2015 1:01 pm

Answer for this question will be C.
Equation for GDP= C + I + G + NX
C= Consumer spending
I= Investment spending
G= government spending
NX = Net imports (exports - imports)
Change in any of these determinants will lead to change in Aggregate demand.
The two factors on the basis of which they are estimated are price level and Real GDP
a) Price level increases: All the factors are calculated on the basis of increase or decrease of price level
b) Federal deficit expands- it is one of the determinants of the equation.
c) Expected inflation decreases- That is the effect of the change in Aggregate Supply. It is not the cause of shift in AD curve but the effect of shift in AS curve.

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