What happens to aggregate demand when households become more optimistic about future economic conditions?

When households become more optimistic about future economic conditions, their confidence influences their spending behavior positively. This optimism can lead households to anticipate better job prospects, higher incomes, and overall improved financial stability. As a result, they are more likely to increase their consumption expenditures, which is a key component of aggregate demand.

In macroeconomic terms, aggregate demand is essentially the total demand for goods and services within an economy at a given overall price level and in a given time period. When households are optimistic, they tend to spend more on not only essential goods and services but also on luxury items and investments. This increase in consumption boosts aggregate demand, contributing to economic growth.

Optimism can also encourage businesses to invest more in production and expansion, further amplifying the increase in aggregate demand. Thus, the correct conclusion is that aggregate demand increases when households feel more positive about future economic conditions.