Suppose workers become pessimistic about their future employment,which causes them to save more and spend less.If the economy is on the intermediate range of the aggregate supply curve,then:
A) both real GDP and the price level will fall.
B) real GDP will fall and the price level will rise.
C) real GDP will rise and the price level will fall.
D) real GDP and the price level will rise.

Question

Quizplus · Accepted Answer

When workers become pessimistic about their future employment, they save more and spend less which leads to a decrease in consumption expenditure. This leads to a fall in the aggregate demand for goods and services. Since the economy is on the intermediate range of the aggregate supply curve, the fall in aggregate demand will cause a fall in both real GDP and the price level. Hence, the correct choice is A.

Suppose Workers Become Pessimistic About Their Future Employment,which Causes Them