Consider an economy which is in both long-run and short-run equilibrium. Which of the following will occur in the short-run if consumer conﬁdence in this economy fell signiﬁcantly?
A) The aggregate demand curve will shift to the left.
B) Firms will increase production as real wages will have fallen.
C) The short-run aggregate supply curve will move to the right.
D) The level of inﬂation in the economy will increase.

Question

Quizplus · Accepted Answer

When consumer confidence falls significantly, consumers are likely to reduce their spending. This decrease in spending leads to a leftward shift in the aggregate demand curve, as the overall demand for goods and services in the economy decreases.

Consider an Economy Which Is in Both Long-Run and Short-Run