Question

Which of the following will shift the aggregate demand curve to the left? Instructions: You may select more than one answer.

a. Reduction in household borrowing.
b. Decrease in the real interest rate.
c. Housing values increase.
d. Decrease in government spending.

Answer 1

Correct answers are A) Reduction in household borrowing and B) Decrease in the real interest rate.

Step-by-step explanation:

Reduction in household borrowing means that houses will have more income either to spend or to save, and this in turn, increases aggregate demand (the curve shifts to the left).

If the real interest rate is lower, investment is cheaper, the demand for loanable funds increases, and economic activity increses too. This makes aggregate demand shift to the left as well.