Due to expectations of a future recession, companies do not think that they can sell all of their output and therefore purchase less equipment and machinery. As an immediate result, the
A) aggregate supply curve becomes vertical
B) aggregate supply curve becomes horizontal
C) aggregate demand curve shifts rightward
D) aggregate demand curve shifts leftward

Question

Quizplus · Accepted Answer

When companies expect a future recession and thus decide to purchase less equipment and machinery, it indicates a decrease in investment spending. This decrease in investment spending is a component of aggregate demand. Therefore, the aggregate demand curve shifts leftward, reflecting a decrease in overall demand in the economy.

Due to Expectations of a Future Recession, Companies Do Not