Shifts in Aggregate Demand Practice For each situation described below, determine if the event will increase or decrease AD. Start with AD curve C. If you think the first situation would increase AD, write "increase" and move to curve D. If you think the first situation would decrease AD, write "decrease" and move to curve B. Move only one curve at a time. Do not skip a curve even if you think the situation would cause a huge increase or decrease in AD. If you think an event would not cause AD to shift, write "no change." Do not go beyond the five curves. If you need to go beyond the five curves, you need to rethink your answers! Also indicate which part of AD is causing the shift, consumer spending (C), investment spending (I), government spending (G), or net exports (Xn).

AD Increase or New Curve What Shifted? C, I, G, Decrease? or Xn? 1. Congress cuts taxes Increase D Consumer 2. Survey shows business Dcrease C Investment investment spending decreased last month 3. Government spending to Increase increase next fiscal year; President promises no increase in taxes 4. Survey shows consumers are confident about future economy 5. Business leaders feel economy Decrease is headed for recession 6. Stock market collapses - Decrease investors lose billions 7. Foreign trade partner experiences a recession 8. President cuts defense spending by 20%; no increase in domestic spending