Using the aggregate demand-aggregate supply model, predict what happens in the short run when the consumer confidence index falls as consumers become pessimistic about their economic prospects.
A) The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases.
B) The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases.
C) The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase.
D) The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease.

Question

Quizplus · Accepted Answer

When consumer confidence falls, consumers tend to spend less, leading to a decrease in aggregate demand. This shifts the aggregate demand curve to the left, resulting in lower price levels and a decrease in real GDP in the short run.

Using the Aggregate Demand-Aggregate Supply Model, Predict What Happens in the Short