A negative demand shock causes a ________ the IS curve and a ________ the aggregate demand curve.
A) movement up along; shift to the left of
B) shift to the right of; movement up along
C) movement down along; movement down along
D) shift to the left of; shift to the left of

Question

Quizplus · Accepted Answer

A negative demand shock leads to a decrease in consumption and investment demand, which shifts the IS curve to the left. This also leads to a shift to the left of the aggregate demand curve as output and prices decrease. Therefore, the correct answer is D, which indicates a shift to the left of both the IS curve and the aggregate demand curve.

A Negative Demand Shock Causes a ________ the IS Curve