What impact would an improved outlook among consumers and businesses have on aggregate expenditures?
If consumers and businesses come to have an improved outlook, aggregate expenditures will rise. This is because an increase in consumer and business confidence leads to more spending.
When businesses are confident, they will be willing to spend on expanding their capabilities. They will foresee that they will be able to sell more of their product in the future. If they believe this, they will invest more money in building up their capabilities. Business investment spending is one part of aggregate expenditures.
When consumers are confident, they will feel that they are able to buy more things. They will not worry so much about their future economic security and will, therefore, not feel the need to save as much. This will lead to increased consumer consumption, which is another part of aggregate expenditures.