If investment decreases, the AE curve shifts
A) upward and there is a movement along the AD curve.
B) upward and the AD curve shifts rightward.
C) downward and there is a movement along the AD curve.
D) downward and the AD curve shifts leftward.

Question

Quizplus · Accepted Answer

A decrease in investment would lead to a decrease in the aggregate demand (AD) in the economy. This would cause the AD curve to shift leftward, indicating a lower level of output and a lower price level. Thus, the correct option is D, which states that a decrease in investment would lead to a downward shift in the AE curve and a leftward shift in the AD curve.

If Investment Decreases, the AE Curve Shifts