Shifts in Aggregate Demand Curve

Steps:

• Identify the direction of the shift: Assume AD2 is to the right of AD1, indicating an increase in aggregate demand.
• Recall AD components: AD = C + I + G + (X - M); shifts occur from changes in these excluding price level.
• Evaluate each option: Check if it increases C, I, G, or net exports.
• Select the option that boosts overall spending without affecting supply side.

Why C is correct:

• A rise in the budget deficit means higher government spending or lower taxes, directly increasing G or C, shifting AD right per the AD equation.

Why the others are wrong:

• A: Higher interest rates reduce I and C, shifting AD left.
• B: Higher output per worker boosts productivity, shifting AS right, not AD.
• D: Higher exchange rate (appreciation) reduces X and increases M, shifting AD left.

Final answer: C