After Hurricane Katrina hit the Gulf Coast, the federal government devoted a massive amount of spending to aid reconstruction. Some of this aid took the form of direct government purchases of goods and services, like the fees paid to transportation companies and hospitals to take care of victims. Some of the aid, like the $2,000 debit cards given to some displaced families, took the form of direct transfers to citizens. What effect would this governmental aid have on the AS-AD model?

After Hurricane Katrina hit the Gulf Coast, the federal government devoted a massive amount of spending to aid reconstruction. Some of this aid took the form of direct government purchases of goods and services, like the fees paid to transportation companies and hospitals to take care of victims. Some of the aid, like the $2,000 debit cards given to some displaced families, took the form of direct transfers to citizens. What effect would this governmental aid have on the AS-AD model?

After Hurricane Katrina hit the Gulf Coast, the federal government devoted a massive amount of spending to aid reconstruction. Some of this aid took the form of direct government purchases of goods and services, like the fees paid to transportation companies and hospitals to take care of victims. Some of the aid, like the $2,000 debit cards given to some displaced families, took the form of direct transfers to citizens. 


What effect would this governmental aid have on the AS-AD model?


A. The AD curve would shift to the left.


B. The AD curve would shift to the right.

C. Both the AD curve and the SRAS curve would shift to the right.

D. Both the AD curve and the SRAS curve would shift to the left.

E. The SRAS curve would shift to the left.

F. Neither the AD curve nor the SRAS curve would shift.

G. The SRAS curve would shift to the right.


Answer Key: B