Factors Shifting Aggregate Demand Leftward

Steps:

• Aggregate demand (AD) = C + I + G + (X - M); shifts occur from changes in these components.
• AD1 likely represents a leftward shift, reducing total demand at every price level.
• Evaluate options: identify effects on C, I, G, or net exports.
• Select option decreasing a component without increasing another.

Why C is correct:

• Encouraging savings reduces consumer spending (C), as households allocate more to savings per the consumption function C = C0 + c(Y - T), lowering AD.

Why the others are wrong:

• A: Decreases surplus (increases deficit), raising G or cutting T, boosting AD rightward.
• B: Shifts spending to domestic goods, increasing C and reducing imports (M), shifting AD rightward.
• D: Boosts investment (I) in enterprises, increasing AD rightward.

Final answer: C