Which set of events clearly would lead to a decrease in aggregate demand if the events occurred simultaneously?
A) Taxes are cut, giving the government less revenue while household debt levels rise.
B) Interest rates fall, giving savers less interest income while government spending on research is cut.
C) There is a strong expansion in the economy of the country's main trading partner at the same time that the country's currency appreciates.
D) Debt levels in the country rise at the same time that the country's currency appreciates.

Question

Quizplus · Accepted Answer

When debt levels rise, it can lead to less consumer spending and business investment, as individuals and businesses are burdened with paying off debt. Additionally, when the currency appreciates, it can lead to a decrease in exports, as foreign buyers will find the country's goods relatively more expensive. Both of these factors would lead to a decrease in aggregate demand.

Which Set of Events Clearly Would Lead to a Decrease