All of these would cause a decrease in a country's aggregate demand EXCEPT
A) the country's currency appreciates in value.
B) the average level of household debt rises.
C) business expectations of the return on investment fall.
D) the country's CPI rises.

Question

Quizplus · Accepted Answer

An increase in the country's Consumer Price Index (CPI) implies an increase in the general price level of goods and services in the economy. In this case, households would need to spend more to purchase the same goods and services, leading to an increase in aggregate demand rather than a decrease. Therefore, D is the incorrect choice.

A) If the country's currency appreciates in value, its exports will become relatively more expensive, and imports will become cheaper. This will lead to a decrease in exports and an increase in imports, ultimately resulting in a decrease in aggregate demand.

B) If the average level of household debt rises, households will have to allocate more income towards debt servicing, reducing their disposable income available for consumption. This will lead to a decrease in aggregate demand.

C) If business expectations of the return on investment fall, firms will become less willing to invest in new projects, reducing investment spending. This will lead to a decrease in aggregate demand.

All of These Would Cause a Decrease in a Country's