How do positive changes in consumer expectations influence aggregate demand?

Positive changes in consumer expectations have a direct influence on aggregate demand by increasing it. When consumers believe that their financial situation will improve or that the economy is doing well, they are more likely to spend rather than save. This increased consumer confidence leads to higher levels of consumption spending, which is a major component of aggregate demand.

As consumers feel more secure in their economic future, they are more inclined to make significant purchases, such as homes, cars, and luxury goods. This surge in consumer spending not only raises overall demand for goods and services but can also encourage businesses to invest more in production capacity and may lead to job creation, further fueling the cycle of increased demand.

In contrast, negative expectations would typically lead to a decrease in consumer spending, while having no effect on aggregate demand would imply that consumer behavior is static, which is unrealistic in a dynamic economy. Fluctuations in demand can occur due to various factors, but they do not specifically capture the clear upward trend in aggregate demand connected to positive consumer expectations. Therefore, the correct understanding is that rising consumer confidence directly correlates with an increase in aggregate demand.