Chapter 12: Problem 9
Name some government policies that could cause aggregate demand to shift.
Short Answer
Expert verified
Some government policies that can cause aggregate demand to shift include expansionary and contractionary fiscal policies, as well as expansionary and contractionary monetary policies. Expansionary fiscal policies, such as increased government spending and tax reduction, increase aggregate demand and stimulate economic growth. Contractionary fiscal policies, like raising taxes and reducing government spending, decrease aggregate demand to slow inflation and stabilize the economy. Expansionary monetary policies involve lowering interest rates and expanding the money supply, encouraging investment and consumption. Conversely, contractionary monetary policies include raising interest rates and reducing the money supply, slowing aggregate demand growth and reducing inflationary pressures.