-Refer to Exhibit 8-1.Assume that the economy is originally in equilibrium at point B.If businesses become pessimistic about future sales,at which point is the economy most likely to end up in the short run?
A) A
B) B
C) C
D) D

Question

-Refer to Exhibit 8-1.Assume that the economy is originally in equilibrium at point B.If businesses become pessimistic about future sales,at which point is the economy most likely to end up in the short run?
A) A 
B) B 
C) C 
D) D

Quizplus · Accepted Answer

When businesses become pessimistic about future sales, they are likely to reduce investment spending. This decrease in investment spending shifts the aggregate demand curve to the left, leading to a new equilibrium at a lower level of output and possibly a lower price level, which corresponds to point A in a typical aggregate demand and supply model.