Suppose that the administration in charge of the government proposes closing military bases to reduce defense spending.

Aggregate demand (AD) components include consumption (C), investment (I), government purchases (G), and net exports (NX). Analyze what the aggregate demand and aggregate supply model would predict here (assuming everything else remains the same) to answer the following questions:

1. Which component of AD is primarily affected

a. Government purchases (G)

b. Net exports (NX)

c. Consumption (C)

d. Investment (I)

2. What likely happens to the AD curve?

a. AD shifts to the left (it decreases)

b. AD shifts to the right (it increases)

c. AD stays in the same location

3. What likely happens to the level of unemployment?

a. Unemployment increases

b. Unemployment remains the same

c. Unemployment decreases