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Answer to Question #71155 in Other Economics for Gayan Maduranga De Alwis

Question #71155
Explain the variables that affect the components for aggregate demand to decrease. Explain in your own words how each of these variable affect the components and how aggregate demand change.
Expert's answer
The aggregate demand curve tends to shift to the left when total consumer spending declines.
Contractionary fiscal policy can shift aggregate demand to the left. The government might decide to raise taxes and/or decrease spending to fix a budget deficit.
Monetary policy has less immediate effects. If monetary policy raises the interest rate, individuals and businesses tend to borrow less and save more. This could shift AD to the left.

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