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Figure: AD-AS Model II
-(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. When firms decrease their investment spending, in the short run the _____ curve will shift to the _____.
A) LRAS; left
B) LRAS; right
C) AD; right
D) AD; left

Question

Use the following to answer questions:
Figure: AD-AS Model II 
-(Figure: AD-AS Model II) Refer to Figure: AD-AS Model II. When firms decrease their investment spending, in the short run the _____ curve will shift to the _____.
A) LRAS; left 
B) LRAS; right 
C) AD; right 
D) AD; left

Quizplus · Accepted Answer

When firms decrease their investment spending, it implies a reduction in aggregate demand in the economy. This shift in aggregate demand will shift the AD curve to the left, leading to a lower level of output and prices in the short run. The LRAS curve is not affected in the short run by changes in aggregate demand.

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