Identify the ways in which each of the following determinants would have to change if each was causing a decrease in aggregate demand: consumer wealth, consumer expectations, business taxes, national income in countries abroad, exchange rates.

What will be an ideal response?

To decrease aggregate demand, consumer wealth would have to fall. For example, a decline in real estate values or a stock market decline would cause a decrease in consumer wealth. If consumers expected prices to fall in the future, or a recession which creates insecurity about jobs, they might cut back on spending now. If business taxes were raised, or some present tax breaks eliminated or reduced, this could reduce business investment spending which, in turn, reduces aggregate demand. When national income abroad is falling, U.S. exports will decline, which reduces the net export spending component of aggregate demand. A dollar appreciation will cause a decline in net exports as U.S. exports become more expensive to foreigners and foreign imports become less expensive to holders of American dollars.