Question 16.14

7. Explain whether the following government policies affect the aggregate demand curve or the short-run aggregate supply curve and how.

  1. The government reduces the minimum nominal wage.

  2. The government increases Temporary Assistance to Needy Families (TANF) payments, government transfers to families with dependent children.

  3. To reduce the budget deficit, the government announces that households will pay much higher taxes beginning next year.

  4. The government reduces military spending.