What effect does an increase in minimum wage from RM 1500 to RM 1700 have on Aggregate Demand (AD)? A) AD remains unchanged as wages do not influence consumption. B) AD shifts left... What effect does an increase in minimum wage from RM 1500 to RM 1700 have on Aggregate Demand (AD)? A) AD remains unchanged as wages do not influence consumption. B) AD shifts left due to increased business costs. C) AD shifts right, but is countered by a decrease in short-run aggregate supply. D) AD shifts right due to increased worker spending.
Understand the Problem
The question is asking about the impact of a specific increase in minimum wage on Aggregate Demand (AD) within the economy. It presents multiple-choice answers related to economic theory about consumption, business costs, and shifts in aggregate demand and supply.
Answer
D) AD shifts right due to increased worker spending.
The final answer is D) AD shifts right due to increased worker spending.
Answer for screen readers
The final answer is D) AD shifts right due to increased worker spending.
More Information
An increase in the minimum wage from RM 1500 to RM 1700 generally puts more money in the hands of workers, particularly those with a higher marginal propensity to consume. This additional income is likely to be spent on goods and services, thus increasing consumption and shifting Aggregate Demand (AD) to the right.
Tips
A common mistake is to overlook the short-term increase in consumption that can result from higher wages, even if long-term business costs might also rise.
AI-generated content may contain errors. Please verify critical information
