Aggregate demand will increase if:
A) the public becomes more optimistic.
B) the aggregate price level falls.
C) government spending is reduced.
D) household wealth decreases.

Question

Quizplus · Accepted Answer

If the public becomes more optimistic, they will be more willing to spend money, which will increase consumption and therefore aggregate demand. B is incorrect because a fall in the aggregate price level would increase aggregate demand through the wealth effect and the interest rate effect, but it is not the best choice because it is not the only possible correct answer. C is incorrect because a reduction in government spending would decrease government purchases and therefore decrease aggregate demand. D is incorrect because a decrease in household wealth would decrease consumption and therefore decrease aggregate demand.

Aggregate Demand Will Increase If