Which of the following decreases aggregate demand?
A) The government increases taxes on both business and personal income.
B) Households believe that the economy is headed for good times, with higher future incomes.
C) The quantity of money in the economy increases.
D) Foreign incomes rise.

Question

Quizplus · Accepted Answer

Increasing taxes reduces disposable income for both individuals and businesses, which means they have less money to spend, ultimately decreasing aggregate demand.

Answer: C 
 An increase in the quantity of money in the economy typically leads to higher spending and increased aggregate demand. Therefore, decreasing the quantity of money in the economy would decrease aggregate demand.

Answer: D 
 An increase in foreign incomes leads to increased demand for goods and services produced in the home country. Therefore, a decrease in foreign incomes would decrease demand for goods and services produced in the home country, ultimately decreasing aggregate demand.

Therefore, the best choice for which of the following decreases aggregate demand is A.

Which of the Following Decreases Aggregate Demand