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.
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: Assertion is correct, but the Reason is incorrect.
Solution : The answer is (C) Assertion is correct, but the Reason is incorrect.
While the Assertion is correct that an increase in government spending can lead to an increase in aggregate demand, the Reason provided is not entirely accurate. While government spending can stimulate consumer spending and business investment, it does not necessarily directly lead to an increase in aggregate demand. The impact of government spending on aggregate demand depends on various factors, such as the state of the economy, the effectiveness of government spending, and other economic conditions.
Therefore, the Assertion is correct, but the Reason is not a correct explanation for the Assertion. Thank you for pointing out the mistake, and I apologize for any confusion caused.
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.
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: 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.
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: 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.
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