Which of the following will increase aggregate demand in the United States?
A) A higher price level.
B) An increase in the real interest rate.
C) An increase in wealth due to a substantial appreciation in the value of stocks.
D) A decrease in real income in Japan and Western Europe.

Question

Quizplus · Accepted Answer

An increase in wealth due to a substantial appreciation in the value of stocks will increase consumers' confidence and lead to higher consumption spending, ultimately increasing aggregate demand. A higher price level (A) will decrease aggregate demand by reducing consumer consumption and investment spending. An increase in the real interest rate (B) will also decrease aggregate demand by reducing consumption and investment spending as borrowing becomes more expensive. A decrease in real income in Japan and Western Europe (D) will decrease their demand for US goods and services, leading to a decrease in US aggregate demand.

Which of the Following Will Increase Aggregate Demand in the United