Answered: 3. Briefly explain why the following…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

3. Briefly explain why the following would cause the Aggregate Demand curve to shift to the right(an increase), or to the left(a decrease):
expectations that the economy will perform very well in the near future

Expert Solution

Step 1

Aggregate demand = C + I + G + (X-M), C= consumption, I= Investment, G= Government spending, (X-M) = Net exports

As consumers expects the economy to perform very well in the near future, it will lead to a positive impact on the investments as they expect better returns from the investments. Consumers will increase their consumptions as they expect higher income in the near future.

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