Question : Assertion: An increase in government regulations can positively impact aggregate demand.
Reason: Government regulations ensure fair competition and consumer protection, which can increase consumer confidence and lead to higher spending, thereby boosting aggregate demand.
Option 1: Both Assertion and Reason are correct, and the Reason is the correct explanation of the Assertion.
Option 2: Both Assertion and Reason are correct, but the Reason is NOT the correct explanation of the Assertion.
Option 3: Assertion is correct, but the Reason is incorrect.
Option 4: Assertion is incorrect, but the reason is correct
Correct Answer: Both Assertion and Reason are correct, and the Reason is the correct explanation of the Assertion.
Solution : The correct answer is (A) Both Assertion and Reason are correct, and the Reason is the correct explanation of the Assertion.
The Assertion that an increase in government regulations can positively impact aggregate demand is correct. Government regulations can have a positive impact on aggregate demand in certain circumstances.
The Reason provided correctly explains this relationship. Government regulations, when designed and implemented effectively, can ensure fair competition, consumer protection, and market stability. These regulations can increase consumer confidence in the market and enhance trust in businesses. When consumers feel confident and protected, they are more likely to spend and engage in economic activities, thereby boosting aggregate demand.
Therefore, both the Assertion and Reason are correct, and the Reason provides a valid explanation of how an increase in government regulations can positively impact aggregate demand.
Question : Assertion: An increase in government spending will always lead to an increase in aggregate demand.
Reason: Government spending directly stimulates consumer spending and business investment, leading to an increase in aggregate demand.
Question : Assertion: An increase in the exchange rate can lead to an increase in aggregate supply.
Reason: A higher exchange rate makes imports more expensive, thereby encouraging domestic production and increasing aggregate supply.
Question : Assertion: An increase in the interest rate can lead to an increase in aggregate demand.
Reason: Higher interest rates incentivize saving, which increases the pool of funds available for borrowing and investment, leading to an increase in aggregate demand.
Question : Assertion: Changes in the aggregate demand curve can cause shifts in the aggregate supply curve.
Reason: Changes in aggregate demand can affect businesses' expectations and decisions regarding production levels and future investments, resulting in shifts in the aggregate supply curve.
Question : Assertion: An increase in the price level will always lead to a decrease in aggregate demand.
Reason: Higher prices reduce consumers' purchasing power, leading to a decrease in their spending and a subsequent decrease in aggregate demand.
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