A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

Question

Quizplus · Accepted Answer

A decrease in investment spending will cause a leftward or downward shift in the aggregate demand function. This will lead to a decrease in equilibrium level of aggregate output or GDP, everything else held constant. Therefore, the correct choice is D where the aggregate demand function shifts down and the equilibrium level of output falls.

A Decrease in Investment Spending Because Companies Become More Pessimistic