Which of the following would cause an increase in aggregate demand (AD)?
A) A decrease in price levels
B) An increase in interest rates
C) A decrease in taxes
D) A rise in the foreign exchange value of the dollar

Question

Quizplus · Accepted Answer

A decrease in taxes would increase consumer spending, leading to an increase in aggregate demand. However, the other choices would have the opposite effect. A decrease in price levels would decrease aggregate demand because it means lower levels of income for producers, causing them to decrease production and employment. An increase in interest rates would decrease investment spending, and it would also reduce the amount of money that consumers and businesses have to spend, leading to a decrease in aggregate demand. Finally, a rise in the foreign exchange value of the dollar would make U.S. exports more expensive and imports cheaper, reducing net exports and causing a decrease in aggregate demand.

Which of the Following Would Cause an Increase in Aggregate