How do tax cuts typically influence aggregate demand?

Tax cuts typically influence aggregate demand by increasing consumer disposable income. When the government reduces income taxes, individuals have more take-home pay. This increase in disposable income allows consumers to spend more on goods and services, thereby boosting overall demand in the economy.

Higher disposable income directly encourages spending, which leads to an increase in consumption, one of the major components of aggregate demand. As consumers buy more, businesses may respond by increasing production, potentially leading to higher employment and income levels, thereby reinforcing the cycle of demand.

In the context of the other options, tax cuts do not decrease consumer spending; rather, they stimulate it. It's also not accurate to say that they have no effect on overall demand, as the increase in disposable income is a significant driver of higher consumer expenditures. Additionally, tax cuts typically do not lead directly to higher interest rates; in fact, lower taxes can sometimes support lower interest rates by increasing liquidity in the economy.