Aggregate demand increases if
A) the government increases spending.
B) the Fed sells government bonds.
C) the government increases taxes.
D) the Fed raises the discount rate.

Question

Quizplus · Accepted Answer

When the government increases its spending, it injects more money into the economy, leading to an increase in aggregate demand. On the other hand, if the Fed sells government bonds, it decreases the money supply, leading to a decrease in aggregate demand. Likewise, if the government increases taxes, it reduces disposable income, leading to a decrease in aggregate demand. Finally, if the Fed raises the discount rate, it makes it more expensive for banks to borrow money, which reduces the amount of money in circulation and leads to a decrease in aggregate demand.

Aggregate Demand Increases If