Use the following diagram to answer the following questions.

-Refer to Diagram 13-1. Suppose the economy is currently in equilibrium at point A. If households decrease spending, this would most likely:

Question

Use the following diagram to answer the following questions.
 
-Refer to Diagram 13-1. Suppose the economy is currently in equilibrium at point A. If households decrease spending, this would most likely:

Quizplus · Accepted Answer

A decrease in household spending would lead to a leftward shift in the aggregate demand curve (from AD₁ to AD₂), which would cause unemployment to rise as firms reduce production in response to lower demand. This would also lead to a decrease in the equilibrium level of real GDP and the equilibrium price level, as the new equilibrium would be established at a lower point on the aggregate supply curve.

Use the Following Diagram to Answer the Following Questions