Which of the following would cause a decrease in aggregate demand? A. a depreciation in the U.S. dollar relative to foreign currencies B. a decrease in interest rates through monetary policy C. a decrease in government spending D. a decrease in taxes E. All of the above.

Fiscal policy is the when taxation and government spending are used to influence the economy. Fiscal policy is used by the governmen to influence the aggregate demand level in the economy in order to achieve full employment, price stability, and economic growth.

Contractionary fiscal policy can be used to control demand pull inflation i.e an inflation which occurs as a result of increase in the demand in the economy. In this case, the government reduces its spending and increases tax. A reduction in government expenditure will also lead to a decrease in aggregate demand and the aggregate demand curve will shift to the left.

anthougo anthougo · Answer 2 · 2021-10-29T17:14:43+02:00

The option that causes a decrease in aggregate demand is C. a decrease in government spending.

Aggregate demand, which refers to the total amount of goods and services that an economy's consumers are willing to demand, is the sum of consumer spending, business spending, government spending, and exports minus imports.

Economic factors that impact aggregate demand are:

Interest rates
Household wealth
Expectations of future inflation
Value of the domestic currency

Government incurs expenditure through public consumption of goods and services, investments, and transfer payments. These expenditures influence aggregate demand, which is necessary for sustained economic development and growth.

Aggregate demand does not decrease when there is:

US dollar depreciation
interest rates decrease
Taxes decrease

Thus, aggregate demand decreases when the government reduces its spending.

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Which of the following would cause a decrease in aggregate​ demand? A. a depreciation in the U.S. dollar relative to foreign currencies B. a decrease in interest rates through monetary policy C. a decrease in government spending D. a decrease in taxes E. All of the above.

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Which of the following would cause a decrease in aggregate demand? A. a depreciation in the U.S. dollar relative to foreign currencies B. a decrease in interest rates through monetary policy C. a decrease in government spending D. a decrease in taxes E. All of the above.