If there is speculation that the economy will soon enter a recession, which means that our incomes will probably fall, then the immediate effect on the economy now will be that the
A) aggregate supply curve will shift to the left.
B) aggregate demand curve will shift to the right.
C) price level will rise and real output will rise.
D) price level will fall and real output will fall.

Question

Quizplus · Accepted Answer

Speculation of a recession leads to decreased consumer and business confidence, reducing spending and investment, which shifts the aggregate demand curve to the left, causing both the price level and real output to fall.

If There Is Speculation That the Economy Will Soon Enter