Question

Which of the following would shift the aggregate demand curve to the left? 

• Increase in government purchases, money supply or gross private investment 

• Decreases in government purchases, decreases in money supply, increases in taxes 

• Increases in taxes, increases in government purchases, decreases in money supply 

• Decreases in taxes, government purchases or money supply 

Answer 1

Shifting of aggregate demand to the left means fall in the demand curve.

AD curve equation: Y = C+I+G

Any fall in either consumption or investment or government expenditure reduces the demand curve

Increase in taxes imply fall in disposable inome and hence fall in consumption

Decrease in money supply means less money in circulation which implies less demand

From the above information it is clear that the correct option is b

Decrease in government purchases, decrease in money supply and increase in taxes may lead to a leftward shift of AD

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