Which of the following decreases aggregate demand?
A) The quantity of money in the economy increases.
B) Foreign incomes rise.
C) The government increases taxes on both business and personal income.
D) Households believe that the economy is headed for good times, with higher future incomes.

Question

Quizplus · Accepted Answer

When the government increases taxes, both businesses and individuals will have less disposable income which will lead to a decrease in their spending, resulting in a decrease in aggregate demand.

Note: A is incorrect because an increase in the quantity of money in the economy will increase spending and aggregate demand. B is incorrect because an increase in foreign incomes will increase exports and therefore increase aggregate demand. D is incorrect because the belief that the economy is headed for good times will increase consumer confidence, leading to an increase in spending and aggregate demand.

Which of the Following Decreases Aggregate Demand