Identify which expenditure category of Aggregate Demand (C, I, G, X, M) each of the following will directly impact, and also in which direction the Canadian aggregate demand curve will shift as a result.

A. Income increases abroad. B. There is a decrease in interest rates. C. Parliament passes permanent tax cuts for both households and businesses. D. Firms become more optimistic about the outlook for the economy.

QUESTION 2

Use the model of aggregate demand (AD) and short-run aggregate supply (SRAS) to explain how each of the following would affect AD or SRAS, real GDP and the price level in the short run.

A. an increase in government purchases

B. a reduction in nominal wages

C. a major improvement in technology

D. a reduction in net exports