Short Answer

Differentiating Economic Shocks on Aggregate Demand

Consider two separate economic events:

  1. The national government approves a large, one-time spending package for new public infrastructure.
  2. A widespread technological innovation makes businesses more optimistic about future profits and eager to increase their capital expenditures, regardless of the current level of national income.

Compare and contrast the immediate effects of these two events on the aggregate demand curve. In your answer, identify which component of aggregate demand is directly affected in each case and describe the resulting change to the curve.

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Updated 2025-10-08

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