Question

Republican politician is elected next president and as a first act, cuts household income tax rates by 5%. President Trump signs an executive order that mandates that all American employees receive an increase of 20% in their base paycheck Personal income in Canada, the USA's largest trading partner, increases by 4%. A decrease in the price of electricity in the USA Overall productivity in the US increases by 1.2%. Decline in gross private domestic investment (I) in the USA. An increase in government spending on education Suppose households become more future-oriented and decide to save more at each income level. A. shifts AD curve to the right B. shift the short run aggregate supply curve to the left C. a rightward shift in the SRAS curve D. shifting the AD curve to the left

Answer 1

If household becomes more future oriented and decides to save more at each income level, consumer spending falls. As a result aggregate demand falls at each income level. Thus, aggregate demand curve shifts to the left. Here, only option D is correct. Option A is incorrect because AD curve does not shifts to the right. Options B and C are incorrect because there will be no change in supply curves.