A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.
A) rise; left
B) rise; right
C) fall; left
D) fall; right

Question

Quizplus · Accepted Answer

A decrease in investment spending reduces aggregate demand, leading to a lower equilibrium level of aggregate output. This is represented by a leftward shift in the IS curve, which shows the relationship between interest rates and the level of income that brings the goods market into equilibrium.

A Decrease in Investment Spending Because Companies Become More Pessimistic