CFA Practice Question

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CFA Practice Question

Which of the following will cause an INCREASE in aggregate demand?

A. A decrease in the price level
B. An increase in the money supply
C. An increase in labor productivity
D. A decrease in government spending
E. An improvement in technology
Correct Answer: B

An increase in the supply of money will increase aggregate demand. A decrease in the price level is a movement along the curve, not a shift in aggregate demand. A decrease in government spending reduces aggregate demand, and the other factors change aggregate supply, not aggregate demand.

User Contributed Comments 12

User Comment
humphrey price drop move along the curve, but toward larger AD, doesn't it?
stranger A price drop means RISE in AD which is just adjustment of equilibrium along the curve.
sharon AD curve shifts due to changes in C, I, and X
Hamma the question is vague IMO. Also "Money Supply" is not very well defined either.
tony1973 Hamma I don't agree with you: money supply here is pretty clear as either M1, M2 or M3 are fine.
haarlemmer There is a difference between increase and shift. Increase means going along the curve whereas shift means changing to another curve. I think.
george2006 so INCREASE AD <==> AD curve shift to the right.
AlexYuen increase $SS-> lower int rate->wealth effect->increase disposable income->increase consumption->increase real GDP
MattyBo AlexYuen hit it right on.
Shaan23 Alex yuen doesnt have it at all. Read the last question.

Price level decreasing would cause an increase in consumption not a price level increase like he has stated
fzhou Just a quick note that in the reading, it says "at each price level, the AD curve shifts to the right due to changes in C, I, G, and X", so the assumption is "at each price level" - price level remains unchanged then we start to consider C, I, G and X.
ashish100 Just admit you got the answer wrong and move on. The editor clearly explains it after. I'm getting tired of all you bums arguing and getting people even more confused. lol
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