How does an increase in consumer confidence typically affect aggregate demand?

An increase in consumer confidence typically leads to greater consumer spending, which is a key component of aggregate demand. When consumers feel more confident about the economic outlook—such as job security, income stability, and overall financial health—they are more likely to increase their expenditures on goods and services. This heightened spending behavior raises the overall level of demand in the economy, thereby shifting the aggregate demand curve to the right.

This relationship is fundamental in macroeconomics: as consumers open their wallets and spend more, businesses respond by increasing production, hiring more employees, and thereby fostering further economic growth. Therefore, the correct understanding of how consumer confidence impacts aggregate demand is that it positively influences consumer spending, leading to an increase in aggregate demand.