What would shift aggregate demand (AD) to the left?

Question

BlackTom AI · Accepted Answer

Higher real interest rates reduce planned investment and consumption, so they shift aggregate demand (AD) to the left.

1. Relevant knowledge points and concepts
- Aggregate demand is the total planned spending: AD = C + I + G + X − M (consumption, investment, government spending, exports minus imports).
- Interest rates affect components: higher interest rates make borrowing more expensive, so investment I(r) falls (∂I/∂r < 0); consumption C can fall as saving yields higher returns and borrowing costs rise (∂C/∂r < 0); higher rates often appreciate the domestic currency, reducing exports and increasing imports (∂NX/∂r < 0). A leftward shift of AD means total planned spending declines at every price level.

2. Step-by-step reasoning
- Raise the interest rate r.
- Investment falls because firms postpone or cancel projects when borrowing costs rise: ΔI < 0.
- Consumption falls as households reduce financed purchases and prefer saving: ΔC ≤ 0.
- Net exports fall if the currency appreciates, lowering X and raising M: Δ(X − M) < 0.
- Government spending G is unchanged by r in this scenario, so net effect is a decline in C + I + (X − M), i.e., AD falls.

3. Intermediate/illustrative calculation
Start with AD0 = C0 + I0 + G + (X0 − M0).
If r rises and causes ΔI = −50, ΔC = −20, Δ(X − M) = −10, then ΔAD = −80 and new AD = AD0 − 80, showing a leftward shift.

4. Why the correct answer is correct
A higher interest rate directly reduces major demand components (I and C) and typically reduces net exports, so aggregate demand decreases at each price level: this is exactly a leftward shift of AD.

5. Why other options are incorrect
- “Lower taxes” raises disposable income and C, shifting AD right, not left.
- “Anything that increases C, I, G, X, or decreases M” describes factors that increase AD (shift right), not left.
- “All of these” is wrong because not all listed moves shift AD left.

6. Conclusion
Therefore, the action that shifts AD to the left is a higher interest rate, which matches the provided correct answer.

What would shift aggregate demand (AD) to the left?单项选择题

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What would shift aggregate demand (AD) to the right?

The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise interest rates, thereby equilibrium output.

Everything else held constant, an increase in financial frictions aggregate .

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What would shift aggregate demand (AD) to the left?单项选择题

类似问题

What would lower aggregate demand (AD)?

Why is aggregate demand (AD) downward-sloping?

What would shift aggregate demand (AD) to the right?

What would lower aggregate demand (AD)?

Why is aggregate demand (AD) downward-sloping?

What would shift aggregate demand (AD) to the right?

The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise ________ interest rates, thereby ________ equilibrium output.

Everything else held constant, an increase in financial frictions ________ aggregate ________.

更多留学生实用工具

希望你的学习变得更简单

The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise interest rates, thereby equilibrium output.

Everything else held constant, an increase in financial frictions aggregate .