Multiple Choice
When looking at a graph of aggregate demand, what does a movement along the aggregate demand curve represent?
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16. Aggregate Demand and Aggregate Supply Analysis
Aggregate Demand
Multiple Choice
Which of the following events would most likely reduce aggregate demand?
A
A reduction in interest rates by the central bank
B
A rise in exports due to a weaker domestic currency
C
An increase in government spending on infrastructure projects
D
A decrease in consumer confidence leading to lower household spending
Verified step by step guidance1
Step 1: Understand that aggregate demand (AD) represents the total demand for goods and services in an economy at a given overall price level and in a given period.
Step 2: Recall that factors that increase consumption, investment, government spending, or net exports tend to increase aggregate demand, while factors that reduce these components tend to decrease aggregate demand.
Step 3: Analyze each event: a reduction in interest rates usually encourages borrowing and spending, increasing AD; a rise in exports increases net exports, raising AD; an increase in government spending directly increases AD.
Step 4: Recognize that a decrease in consumer confidence leads to lower household spending, which reduces consumption, a major component of aggregate demand.
Step 5: Conclude that among the options, the event that most likely reduces aggregate demand is the decrease in consumer confidence leading to lower household spending.
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