(Figure: Shifts in Aggregate Demand) Starting at equilibrium point b, if imports increase or consumer demand decreases, the demand curve will shift to _____, thus _____ the price level and _____ real output. A) AD₁; increasing; decreasing B) AD₂; decreasing; decreasing C) AD₁; increasing; increasing D) AD₂; increasing; decreasing

Question

Quizplus · Accepted Answer

If imports increase or consumer demand decreases, aggregate demand will decrease, causing the demand curve to shift to the left from AD to AD' as shown in the graph. This will lead to a decrease in both the price level and real output, moving the economy from point b to point c. The correct curve for this scenario is AD₂.

(Figure: Shifts in Aggregate Demand) Starting at Equilibrium Point B