5. Suppose that government cuts personal tax rates (but it does not cut governme

Question

5. Suppose that government cuts personal tax rates (but it does not cut government spending). On the AD & AS model, this will cause a) The AS curve to shift right b) The AS curve to shift left c) The AD curve to shift right d) The AD curve to shift left 6. Suppose that firm managers become more optimistic about the future profit opport AS model, this will cause a) The AS curve to shift right b) The AS curve to shift left c) The AD curve to shift right d) The AD curve to shift lef unities for their firms. On the AD& 7. Suppose that government cuts Social Security benefits (but it does not cut tax rates). On the AD & AS model, this will cause a) The AS curve to shift right b) The AS curve to shift left c) The AD curve to shift right d) The AD curve to shift left curnc to appreciate (get more expensive compared to foreign

Explanation / Answer

5. Ans: The AD curve to shift right.

Explanation:

When personal tax rate decrease, the private consumption expenditure would increase that would shift the aggregate demand curve to right.

6. Ans: The AS curve to shift right.

Explanation:

When the business manager is optimistic about future opportunities, he/she will increase investment in business that would increase production. This would shift the aggregate supply curve to right.

7. Ans: The AD curve to shift left.

Explanation:

When government reduces social security benefits, people would save more for their social security. People would save more by decreasing their Consumption expenditures. Thus, the decrease in Consumption expenditures would shift the aggregate demand curve to left.

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