Suppose a stock market crash makes people feel poorer.What are the effects of this decrease in wealth?
A)a decrease in consumption, which shifts aggregate supply left
B)a decrease in consumption, which shifts aggregate demand left
C)an increase in consumption, which shifts aggregate supply right
D)an increase in consumption, which shifts aggregate demand right

Question

Quizplus · Accepted Answer

When people feel poorer due to a stock market crash, they are likely to decrease their consumption as they are worried about their financial stability. This decrease in consumption will shift the aggregate demand curve leftward as overall demand for goods and services will decrease. Therefore, choice B is the correct option. A, C, and D are incorrect as they suggest an opposite effect, which is not consistent with the impact of decreased wealth on consumption.

Suppose a Stock Market Crash Makes People Feel Poorer