Which of the following events would both shift aggregate demand to the left?

• A. A decrease in taxes and an increase in investment
• B. A rise in exports and a fall in the price level
• C. A decrease in consumer confidence and an increase in taxes
• D. An increase in government spending and a decrease in interest rates

Answer: (C)

Verified step by step guidance

1. Step 1: Understand that aggregate demand (AD) represents the total quantity of goods and services demanded across all levels of an economy at a given overall price level and in a given period.
2. Step 2: Recall that factors which increase consumption, investment, government spending, or net exports shift the aggregate demand curve to the right, while factors that decrease these components shift it to the left.
3. Step 3: Analyze each event to determine its effect on aggregate demand: a decrease in taxes generally increases disposable income and consumption, shifting AD right; an increase in investment also shifts AD right; a rise in exports increases net exports, shifting AD right; a fall in the price level causes movement along the AD curve, not a shift; a decrease in consumer confidence reduces consumption, shifting AD left; an increase in taxes reduces disposable income and consumption, shifting AD left; an increase in government spending shifts AD right; a decrease in interest rates encourages investment and consumption, shifting AD right.
4. Step 4: Identify the event that combines two factors both shifting aggregate demand to the left. The decrease in consumer confidence and increase in taxes both reduce consumption, thus shifting AD left.
5. Step 5: Conclude that the correct choice is the event where both components cause a leftward shift in aggregate demand, which is the decrease in consumer confidence and increase in taxes.