Suppose a drop in stock prices makes people feel less wealthy.This would cause __________ the economy's AD curve.
A) movement down along
B) movement up along
C) a rightward shift of
D) a leftward shift of

Question

Quizplus · Accepted Answer

A drop in stock prices decreases the wealth effect, which reduces consumption, investment, and net exports. This leads to a decrease in aggregate demand (AD), shifting the AD curve to the left. Therefore, the correct answer is D, a leftward shift of the AD curve.

Suppose a Drop in Stock Prices Makes People Feel Less