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
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.
