Explain how each of the following factors would influence aggregate demand in the United States. Be sure to explain which component of aggregate demand would be affected
a. a stock market crash
b. an increase in the personal income tax rate
c. a decrease in the real interest rate
d. an increase in government purchases
e. a decline in income in Canada
a. A stock market crash would decrease wealth, causing consumption, and thus aggregate demand, to decline.
b. An increase in the personal income tax rate would decrease consumers' disposable income, lowering consumption and aggregate demand.
c. A decrease in the real interest rate would increase consumer purchases of durable goods and business purchases of investment goods, causing aggregate demand to increase.
d. An increase in government purchases would directly increase aggregate demand.
e. A decline in income in Canada would cause the demand for U.S. exports to fall, causing a decline in net exports and a decline in aggregate demand.
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