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

Question

Quizplus · Accepted Answer

A decrease in investment spending would result in a leftward shift of the aggregate demand function in the Keynesian cross diagram. This would cause the equilibrium level of aggregate output to fall, as shown by the intersection of the new aggregate demand function and the 45-degree line. In turn, this would shift the IS curve to the left, as output (Y) is the dependent variable in the Keynesian cross model.

In the Keynesian Cross Diagram,a Decrease in Investment Spending Because