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QUESTION:
The graph below is associated with a hypothetical country. Consider an increase in aggregate demand (AD). Specifically, aggregate demand shifts to the right from AD1 to AD2, causing the quantity of output demanded to rise at each price level. For instance, at a price level of 140, output is now $400 billion, where initially it was $300 billion.
The following table lists several determinants of aggregate demand.
Fill in the missing values in the table by selecting the change in each scenario required to increase aggregate demand.
Change Required to Increase AD
Expected rate of return on investment    
Incomes in other countries    
Wealth    
Taxes    

ANSWER:

Fill in the missing values in the table by selecting the change in each scenario required to increase aggregate demand.
Change Required to Increase AD
Expected rate of return on investmentIncrease  Correct 
Incomes in other countriesIncrease  Correct 
WealthIncrease  Correct 
TaxesDecrease  Correct 
Points:
1 / 1
Close Explanation
Explanation:
The rate of return that businesses expect on capital projects is a key determinant of investment. Suppose a technological breakthrough causes an increase in the expected return on investment. Investment spending will rise, and aggregate demand will increase at each price level.
When the incomes of foreigners increase, foreigners will purchase more domestic products, causing exports to rise. Because net exports are one component of aggregate demand, this increase in net exports (exports minus imports) leads to an increase in aggregate demand at each price level.
The level of consumer spending depends, in part, on household wealth. As household wealth rises, consumer spending rises at each price level. An increase in consumer spending leads to an increase in aggregate demand.
A decrease in taxes increases households' disposable income. Households will spend more, causing aggregate demand to increase at each price level.

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