Suppose a fall in stock prices makes people feel less wealthy. What are the effects of this decrease in wealth?
A) decreased consumption, shown as a movement to the left along a given aggregate-demand curve
B) increased consumption, shown as a movement to the right along a given aggregate-demand curve
C) decreased consumption, which shifts the aggregate-demand curve to the left
D) increased in consumption, which shifts the aggregate-demand curve to the right

Question

Quizplus · Accepted Answer

A fall in stock prices and decrease in wealth would lead to decreased consumption, which would shift the aggregate-demand curve to the left. This is because people would have less money to spend on goods and services, causing a decrease in demand for them. As a result, businesses would produce fewer goods and services, leading to a decrease in GDP.

Suppose a Fall in Stock Prices Makes People Feel Less