AP Macroeconomics Question 79: Answer and Explanation
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5. Which of the following would shift the aggregate demand curve to the right?
- A. An increase in the price level
- B. Depreciation in the international value of the dollar
- C. An increase in personal income tax rates
- D. An increase in interest rates
- E. A decrease in the price level
Correct Answer: B
B Depreciation in the international value of the dollar will decrease imports and increase exports as American goods are now less expensive and imports are now more expensive, thereby shifting aggregate demand to the right (which constitutes an increase in aggregate demand). Changes in the price level cause movements along a fixed aggregate demand curve rather than a complete shift of it. An increase in personal income taxes would decrease consumption spending, a component of aggregate demand. An increase in interest rates would decrease investment, which is also a component of aggregate demand.