An increase in aggregate demand is most likely to be caused by which of the following?
A) an increase in real interest rates
B) a decrease in government spending
C) a decrease in expected returns on investment
D) a decrease in the tax rates on household income

Question

Quizplus · Accepted Answer

A decrease in tax rates on household income would increase disposable income and therefore increase consumption, leading to an increase in aggregate demand. The other options would likely decrease aggregate demand: higher real interest rates would lead to less borrowing and spending, lower government spending would decrease overall spending in the economy, and lower expected returns on investment would lead to less investment spending.

An Increase in Aggregate Demand Is Most Likely to Be