If United States consumers revise upwards their income expectations, what happens to aggregate demand?

When consumers in the United States revise their income expectations upwards, it typically leads to an increase in aggregate demand because higher expectations for income can boost consumer confidence and spending. When individuals expect to earn more income in the future, they are likely to increase their current consumption. This spending can take the form of purchasing goods and services, which directly contributes to aggregate demand.

The boost in consumption occurs because consumers feel more financially secure with their anticipated higher income, allowing them to spend more freely. This is often reflected in increased demand for both durable goods (like cars and appliances) and non-durable goods (like groceries and clothing). As consumption is a major component of aggregate demand, its increase positively affects overall economic demand levels.

In contrast, if income expectations were to decrease or remain the same, consumer spending might contract, leading to lower aggregate demand. The relationship between consumer expectations and spending highlights the importance of psychological factors in economics, showing that expectations can greatly influence economic activity.