The U.S.aggregate demand curve shifts leftward if
A) the economic conditions in Europe improve so that European incomes increase.
B) there is a tax cut.
C) the Federal Reserve hikes the interest rate.
D) the exchange rate falls.

Question

Quizplus · Accepted Answer

An increase in interest rates by the Federal Reserve causes a decrease in consumer and investment spending, leading to a leftward shift of the aggregate demand curve. A tax cut or an improvement in economic conditions in Europe would increase consumer spending, shifting the aggregate demand curve rightward. A fall in the exchange rate would increase net exports, also shifting the aggregate demand curve rightward.

The U.S.aggregate Demand Curve Shifts Leftward If