Which of the following government actions would lead to an increase in aggregate demand?
(1) Increasing taxation and keeping government expenditure the same
(2) Decreasing taxation and increasing government expenditure
(3) Decreasing money supply
(4) Decreasing interest rates
Decreasing taxation and increasing government expenditure would lead to increased aggregate demand. Decreasing interest rates reduces the incentive to save and so would lead to an increase in aggregate demand.