Questions: Which of the following statements represents a correct and sequentially accurate economic explanation? Business taxes rise, investment falls, total expenditures on goods and services falls, AD rises, and the AD curve shifts rightward. The dollar depreciates, net exports rise, total expenditures on goods and services rises, AD rises, and the AD curve shifts rightward. The interest rate falls, consumption rises, total expenditures on goods and services rises, AD rises, and the AD curve shifts rightward. b and c a, b, and c

Which of the following statements represents a correct and sequentially accurate economic explanation? Business taxes rise, investment falls, total expenditures on goods and services falls, AD rises, and the AD curve shifts rightward. The dollar depreciates, net exports rise, total expenditures on goods and services rises, AD rises, and the AD curve shifts rightward. The interest rate falls, consumption rises, total expenditures on goods and services rises, AD rises, and the AD curve shifts rightward. b and c a, b, and c

Transcript text: Which of the following statements represents a correct and sequentially accurate economic explanation? Business taxes rise, investment falls, total expenditures on goods and services falls, AD rises, and the AD curve shifts rightward. The dollar depreciates, net exports rise, total expenditures on goods and services rises, $A D$ rises, and the $A D$ curve shifts rightward. The interest rate falls, consumption rises, total expenditures on goods and services rises, $A D$ rises, and the $A D$ curve shifts rightward. b and c $a, b$, and $c$

Solution

Answer

The answer is b and c

Explanation

Option 1: Business taxes rise, investment falls, total expenditures on goods and services falls, AD rises, and the AD curve shifts rightward.

This statement is incorrect because if business taxes rise, it typically leads to a decrease in investment. This decrease in investment would lead to a fall in total expenditures on goods and services, causing Aggregate Demand (AD) to fall, not rise. Therefore, the AD curve would shift leftward, not rightward.

Option 2: The dollar depreciates, net exports rise, total expenditures on goods and services rises, AD rises, and the AD curve shifts rightward.

This statement is correct. When the dollar depreciates, U.S. goods become cheaper for foreign buyers, leading to an increase in net exports. This increase in net exports raises total expenditures on goods and services, causing AD to rise and the AD curve to shift rightward.

Option 3: The interest rate falls, consumption rises, total expenditures on goods and services rises, AD rises, and the AD curve shifts rightward.

This statement is also correct. When the interest rate falls, borrowing becomes cheaper, which can lead to an increase in consumption and investment. This increase in consumption and investment raises total expenditures on goods and services, causing AD to rise and the AD curve to shift rightward.

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