Factors Increasing Aggregate Demand

Steps:

• Recall that the aggregate demand (AD) curve shifts right when total spending in the economy rises due to changes in consumption, investment, government spending, or net exports.
• Evaluate each option: A budget deficit increases government spending or cuts taxes, boosting AD.
• B higher consumer savings reduces consumption, shifting AD left.
• C a higher general price level causes a movement along the AD curve, not a shift.
• D a higher interest rate discourages investment and consumption, shifting AD left.

Why A is correct:

• A larger budget deficit means more government borrowing and spending, directly increasing aggregate demand per the components of GDP formula (AD = C + I + G + NX).

Why the others are wrong:

• B: Increased savings lowers consumption spending, reducing AD.
• C: Price level changes cause movements along the AD curve, not shifts.
• D: Higher interest rates raise borrowing costs, decreasing investment and AD.

Final answer: A