ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -a) Decline in consumer wealth is possible to be the aftermath of the drop in prices on the stock market, thus aggregate demand will fall. Wealth is a higher measure of the ability to purchase than income. If overall wealth decreases people will consume less thus aggregate demand decreases.

Detailed explanation-2: -An increase in wealth will induce people to increase their consumption. The consumption component of aggregate demand will thus be greater at lower price levels than at higher price levels.

Detailed explanation-3: -The correct answer to the given question is option c. An increase in income taxes. An increase in income taxes leads to decrease in disposable income for consumers thereby dampening the aggregate demand for goods and services.

Detailed explanation-4: -An increase in the stock market will increase people’s wealth, which means they have more money, so will increase consumer spending. That will increase, or shift, aggregate demand to the right. A decrease in government spending would definitely decrease the aggregate demand.

Detailed explanation-5: -The aggregate demand curve tends to shift to the left when total consumer spending declines. 2 Consumers might spend less because the cost of living is rising or because government taxes have increased. Consumers may decide to spend less and save more if they expect prices to rise in the future.