When we add the risk premium to the AD curve it:
A)is represented by a downward movement along the AD curve.
B)is represented by a downward movement along the AS curve.
C)shifts the AD curve down.
D)shifts the AS curve up.
E)has no impact on the AD curve.

Question

Quizplus · Accepted Answer

Adding the risk premium increases the cost of borrowing and reduces investment, leading to lower aggregate demand. This is represented by a downward shift of the AD curve.

When We Add the Risk Premium to the AD Curve