Suppose a stock market crash makes people feel poorer. What are the effects of this decrease in wealth?
A)a decrease in consumption, which shifts aggregate supply left
B)a decrease in consumption, which shifts aggregate demand left
C)a increase in consumption, which shifts aggregate supply right
D)a increase in consumption, which shifts aggregate demand right

Question

Quizplus · Accepted Answer

A decrease in wealth due to a stock market crash will lead to a decrease in consumer confidence, causing people to spend less. This decrease in consumption will shift the aggregate demand curve leftward, as there is now less demand for goods and services.

Suppose a Stock Market Crash Makes People Feel Poorer