How does an increase in consumer spending affect aggregate demand?

An increase in consumer spending directly impacts aggregate demand by increasing it. Aggregate demand represents the total quantity of goods and services demanded across all levels of the economy at different price levels. When consumers spend more—perhaps due to rising confidence or income—the overall demand for goods and services rises.

This boost in consumer expenditure can lead to higher sales for businesses, prompting them to produce more to meet demand. As production increases, it can lead to various positive economic effects, including increased job opportunities and higher income levels, which may further stimulate spending in a positive feedback loop. This relationship is a fundamental component of Keynesian economics, where consumer behavior significantly influences overall economic activity.

In contrast, if aggregate demand were to decrease, have no effect, or shift aggregate supply, it would not align with the principle that rising consumer confidence and spending enhance demand for goods and services in the economy. Thus, the correct choice highlights the direct correlation between consumer spending and aggregate demand.