What happens to aggregate demand if people want to save more for retirement and the government raises taxes?
A) Aggregate demand shifts right.
B) Aggregate demand shifts left.
C) If people save more, aggregate demand shifts right; if the government raises taxes, aggregate demand shifts left.
D) If people save more, aggregate demand shifts left; if the government raises taxes, aggregate demand shifts right.

Question

Quizplus · Accepted Answer

If people want to save more for retirement, they will likely reduce their current consumption, which would decrease aggregate demand (since consumption is a component of aggregate demand). Additionally, if the government raises taxes, individuals and businesses will have less disposable income to spend, which would also decrease aggregate demand. Therefore, both factors would lead to a leftward shift in the aggregate demand curve.

What Happens to Aggregate Demand If People Want to Save