Explain whether the following government policies affect the aggregate demand curve or the short-run aggregate supply curve and how. a. The government reduces the minimum nominal wage. b. The government increases Temporary Assistance to Needy Families (TANF) payments, government transfers to families with dependent children. c. To reduce the budget deficit, the government announces that households will pay much higher taxes beginning next year. d. The government reduces military spending.

a) Reducing the minimum nominal wage b) Increasing TANF payments c) Announcing higher taxes for next year d) Reducing military spending Answer: a) Reducing the minimum nominal wage affects the short-run aggregate supply curve by shifting it to the right due to lower labor costs for businesses. b) Increasing TANF payments affects the aggregate demand curve and shifts it to the right due to an increase in consumption resulting from higher disposable income in households receiving the benefits. c) Announcing higher taxes for next year affects the aggregate demand curve by shifting it to the left, as households anticipate having less disposable income in the future and thus saving more while consuming less in the present. d) Reducing military spending affects the aggregate demand curve by shifting it to the left, due to a decrease in government spending which leads to decreased aggregate demand.