Question

Which combination of factors would most likely increase aggregate demand? Pick your answer from below and explain your answer choice.

A. An increase in household indebtedness and a decrease in net exports.

B. An increase in consumer wealth and a decrease in interest rates.

C. An increase in ner exports and a decrease in government spending.

D. An increase in business taxes and a decrease in profit expectations.

Answer 1

The correct answer is B, as both increased consumer wealth and decreased interest rates yield a higher aggregate demand by boosting consumption spending and investment.

Step-by-step explanation:

The combination of factors that would most likely increase aggregate demand (AD) is B: An increase in consumer wealth and a decrease in interest rates. This is because an increase in consumer wealth often leads to more consumption spending, as people feel richer and are more willing to spend money, thus shifting the AD curve to the right. Additionally, a decrease in interest rates typically spurs greater investment by businesses and spending by consumers, as loans become cheaper to take out, further contributing to a rightward shift in the AD curve.