Which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases?

Question

Quizplus · Accepted Answer

The multiplier effect occurs when a change in spending (such as a decrease in consumer spending) leads to a larger overall decrease in aggregate demand due to the ripple effects throughout the economy. This is because when consumers spend less, businesses earn less revenue, which may lead to decreased hiring or even layoffs, resulting in further decreases in consumer spending. Therefore, the multiplier effect tends to amplify the initial decrease in spending. Crowding-out occurs when government spending increases, causing interest rates to rise and crowding out private investment. The wealth effect occurs when changes in the value of assets (such as stocks or housing) affect consumer spending. The interest rate effect occurs when changes in interest rates affect the cost of borrowing and the willingness of consumers and businesses to spend. None of these options specifically tend to make aggregate demand decrease more than the amount that consumer spending decreases.

Which of the Following Tends to Make Aggregate Demand Decrease