What is a potential consequence of high consumer confidence on the economy?

High consumer confidence typically leads to an increase in aggregate demand. When consumers feel confident about their financial situation and the economic outlook, they are more likely to spend money on goods and services rather than saving or being cautious. This increase in consumer spending can stimulate businesses to produce more, potentially leading to higher employment rates and additional investments as companies increase their capacity to meet heightened demand.

As a result, the overall economy can experience growth, which is reflected in aggregate demand. Higher consumer confidence, therefore, is a strong driver of economic activity through the multiplier effect, where increased spending leads to more income generation and further spending down the line. This underlines why the increase in aggregate demand is the correct answer.