Suppose people are worried about losing their jobs. In the short run, this will
A) decrease short-run aggregate supply and output.
B) decrease aggregate demand and output.
C) decrease aggregate demand and short-run aggregate supply.
D) decrease output and increase the price level.
E) increase saving and increase aggregate demand.

Question

Quizplus · Accepted Answer

When people are worried about losing their jobs, they tend to cut back on their spending. This decrease in spending leads to a decrease in aggregate demand, which in turn leads to a decrease in output. This relationship is especially relevant in the short run, as it takes time for the economy to adjust to changes.

Suppose People Are Worried About Losing Their Jobs