Question

Real-Balances Effect Household Expectations Interest-Rate Effect Personal Income Tax Rates Profit Expectations National Incomes Abroad Government Spending Answer the question based on the accompanying list of factors that are related to the aggregate demand curve. Changes in which two of the factors would most likely cause a shift in aggregate demand due to a change in consumer spending.

Answer 1

Answer: Household Expectations

Personal Income Tax Rates

Step-by-step explanation:

The Aggregate Demand curve can shift as a result of Consumer Spending, Government Spending, Investment Spending or Net Export spending.

When the AD shifts due to a change in Consumer Spending, the reasons are usually related to individuals in the economy including Households.

One of the reasons there may be a shift is due to changes in Household Expectations.

If a Household expects an Economic variable such as Inflation to change in the future, it might inspire them to act now to take advantage of it. For example, if a Household expects that car prices will rise in future, they may decide to buy a car now instead so as not to pay a higher amount in future thus increasing demand and shifting the AD curve Right.

Another reason could be the Personal Income Tax rate. Taxes reduce the amount that people have after they are paid. A change in personal income tax rates therefore is a change in people's income. If Personal Tax rates were to reduce for instance, that would mean that people would have more money to spend and they might consume this extra money. This would increase Consumption and therefore shift the AD curve Right.