Which of the following would result in a decrease in U.S. aggregate demand?

• A. A rise in exports due to a weaker dollar
• B. A reduction in interest rates by the Federal Reserve
• C. A decrease in consumer confidence leading to lower household spending
• D. An increase in government spending on infrastructure

Answer: (C)

Verified step by step guidance

1. Step 1: Understand that aggregate demand (AD) represents the total demand for goods and services in an economy at a given overall price level and in a given period.
2. Step 2: Recall that aggregate demand is composed of four main components: consumption (C), investment (I), government spending (G), and net exports (NX), where NX = exports - imports.
3. Step 3: Analyze each option in terms of its effect on these components: a rise in exports increases net exports (NX), a reduction in interest rates typically increases investment (I) and consumption (C), an increase in government spending directly raises G, and a decrease in consumer confidence reduces consumption (C).
4. Step 4: Identify that a decrease in consumer confidence leads to lower household spending, which reduces consumption (C), thereby decreasing aggregate demand.
5. Step 5: Conclude that among the options, the decrease in consumer confidence leading to lower household spending is the factor that would cause a decrease in U.S. aggregate demand.