Refer to the above diagrams.A decline in aggregate expenditures from AE₂ to AE₁resulting from the wealth, interest rate, and foreign trade effects would be depicted as: A)a movement from A to B along aggregate demand curve AD₁. B)a movement from C to A along aggregate demand curve AD₁. C)a shift of aggregate demand from AD₁ to AD₂. D)a shift of aggregate demand from AD₂ to AD₁.

Question

Quizplus · Accepted Answer

A decline in aggregate expenditures would result in a leftward shift of the aggregate demand curve. Therefore, the movement from AE₂ to AE₁ would indicate a shift from AD₂ to AD₁. However, since the question asks specifically about the effects of wealth, interest rate, and foreign trade, we can deduce that this shift would occur due to a decrease in consumer wealth, an increase in interest rates, and a decrease in foreign exports (i.e. a decrease in net exports), which would all shift the aggregate demand curve leftward. Therefore, the correct answer is B, which indicates a movement from C to A along aggregate demand curve AD₁.

Refer to the Above Diagrams