The aggregate demand curve often shifts to the left when overall consumer spending drops. Consumers may spend less as a result of rising living costs or higher taxes.
Consumers may decide to spend less and save more if they expect price hikes in the future. Consumer temporal preferences may change over time, possibly favoring future consumption over present consumption.
Additionally, the aggregate demand may shift to the left as a result of a contractionary fiscal strategy. The government may decide to raise taxes or reduce spending to balance the budget.
Monetary policy has less immediate effects. Both individuals and businesses prefer to borrow less and save more when the interest rate is raised by monetary policy.
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