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.
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 changes in the aggregate demand curve can cause shifts in the aggregate supply curve is correct. Changes in aggregate demand, such as an increase or decrease in consumer spending, investment, government expenditure, or net exports, can influence businesses' expectations and decisions regarding production levels and future investments. These changes in expectations and decisions can lead to shifts in the aggregate supply curve.
The Reason provided explains this relationship accurately. When aggregate demand changes, it can affect businesses' expectations and their perception of future demand for goods and services. Based on these expectations, businesses may adjust their production levels, investment plans, and hiring decisions, leading to shifts in the aggregate supply curve.
For example, during a period of high consumer confidence and increased consumer spending, businesses may anticipate higher future demand and respond by increasing production, expanding capacity, and hiring more workers. This shift in their production decisions will lead to a rightward shift in the aggregate supply curve.
Therefore, the Reason correctly explains how changes in aggregate demand can affect businesses' expectations and decisions, leading to shifts in the aggregate supply curve.
Question : Assertion: Changes in aggregate supply can cause inflation in an economy.
Reason: Increases in aggregate supply can lead to higher production costs, which in turn can drive up prices and cause inflation.
Question : Assertion: Changes in aggregate demand have no impact on the equilibrium level of output and price level in an economy.
Reason: Changes in aggregate demand can shift the aggregate demand curve, leading to changes in the equilibrium level of output and price level in an economy.
Question : Assertion: An increase in aggregate supply will always result in economic growth.
Reason: When aggregate supply increases, it leads to increased production and output, which is indicative of economic growth.
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 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.
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