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Question : Statement 1: A decrease in business investment will lead to a leftward shift in the aggregate supply curve.

Statement 2: An increase in imports will lead to a leftward shift in the aggregate demand curve.

Which statement is correct?

Option 1: Only Statement 1
 

Option 2: Only Statement 2
 

Option 3: Both Statement 1 and Statement 2

 

Option 4: Neither Statement 1 nor Statement 2


Team Careers360 2nd Jan, 2024
Answer (1)
Team Careers360 5th Jan, 2024

Correct Answer: Both Statement 1 and Statement 2

 


Solution : The correct answer is (C) Both Statement 1 and Statement 2

Statement 1 is correct. Business investment refers to the spending by businesses on capital goods, such as machinery and equipment, to expand their productive capacity. When business investment decreases, it can lead to a decrease in the overall quantity of goods and services that can be produced in the economy. This results in a leftward shift of the aggregate supply curve, indicating a decrease in the total supply of goods and services at each price level.

Statement 2 is also correct. Imports represent the goods and services that a country purchases from other countries. An increase in imports means that a higher proportion of consumer spending is directed towards foreign goods and services, rather than domestic ones. This reduces the overall demand for domestically produced goods and services, leading to a leftward shift of the aggregate demand curve.

Therefore, both Statement 1 and Statement 2 are correct.

 

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