What effect does increased consumer spending typically have on aggregate demand?

Increased consumer spending typically leads to an increase in aggregate demand because consumer spending is a crucial component of overall economic demand. When consumers spend more, it directly raises the demand for goods and services across various sectors of the economy. This heightened demand can stimulate production, leading to increased output and potentially higher employment as businesses respond to the higher level of consumption.

Moreover, higher consumer spending can also have positive spillover effects on businesses, encouraging them to invest more and expand their operations, which can further boost aggregate demand. This relationship is foundational in macroeconomics, where consumer confidence and expenditure are seen as vital drivers of economic growth.

Thus, the correct understanding is that an increase in consumer spending correlates with a rise in aggregate demand, reflecting the essential role that consumer behavior plays in shaping economic activity.