Which factor is likely to reduce aggregate demand?

The factor that is likely to reduce aggregate demand is a rise in taxes. When taxes increase, consumers have less disposable income available to spend, which can lead to a decrease in consumer spending. As aggregate demand is primarily influenced by consumption, investment, government spending, and net exports, a reduction in consumer spending due to higher taxes would shift the aggregate demand curve to the left.

This reduction in aggregate demand can also have a cascading effect on the economy, as lower consumer spending may lead to decreased business revenues and, consequently, lower levels of investment by businesses. Overall, the relationship between taxation and aggregate demand is significant, as it directly influences the purchasing power of consumers and their willingness to spend, ultimately affecting the overall economic activity.