Final answer:
Government policies such as a decrease in income taxes, reduction in government spending, increase in interest rates, and implementation of trade barriers can shift aggregate demand by affecting consumption, investment, and net exports.
Step-by-step explanation:
Some government policies that could cause aggregate demand to shift include:
- A decrease in income taxes which can increase household disposable income leading to higher consumer spending.
- A reduction in government spending can lower overall demand in the economy, shifting aggregate demand to the left.
- An increase in interest rates orchestrated by a central bank (like the Federal Reserve) can reduce borrowing, subsequently decreasing consumption and investment.
- The implementation of trade barriers, such as tariffs or quotas, can reduce imports and potentially increase domestic demand if consumers turn to locally produced goods.
These policies have direct impacts on consumption, investment, government spending, and net exports, all of which are components of aggregate demand.