Question

Answer the next question based on the following list of factors that are related to the aggregate demand curve.

1) Real-Balances Effect

2) Household Expectations

3) Interest-Rate Effect

4) Personal Income Tax Rates

5) Profit Expectations

6) National Income Abroad

7) Government Spending

8) Foreign Purchases Effect

9) Exchange Rates

10) Degree of Excess Capacity

Changes in which two of the factors would most likely cause a shift in aggregate demand due to a change in consumer spending?

1&3?

2&4?

2&10?

8&9?

Answer 1

Changes in household expectations and change in personal income tax rates  would most likely cause a shift in aggregate demand due to a change in consumer spending.Because as households expectations change i.e suppose they expect that in future price for a good increases, so consumer spending increases today and therefore aggregate demand increases. And similarly, there is a cut in personal income tax rate then consumer can spend more of their income and therefore aggregate demand increases. Hence, option(B) is correct i.e 2&4.