Answer to Question #242938 in Macroeconomics for Mercy

Question

Which of the following will cause a rightward shift in aggregate demand?


(i) Expected increase in firm profits.
(ii) A decrease in income tax rates.
(iii) An increase in expected future income.
(iv) A fall in the price level.

Group of answer choices

ii and iii.

i and iii.

Only i, ii and iii.

Only ii and iv.

Answer 1

ii and iii.

A decrease in income tax means that consumers will have a good amount of disposable income and they will have to buy more. This implies an increase in demand.

An increase in expected future income implies that consumers will have more more money to spend hence there will be a high probability of rising aggregate demand.