A negative demand shock,holding everything else constant:
A) shifts AD to the left and results in lower aggregate price levels and lower real GDP in the short run.
B) shifts AS to the left and results in lower aggregate price levels and lower real GDP in the short run.
C) moves the economy downward along the AD curve.
D) moves the economy upward along the AD curve.

Question

Quizplus · Accepted Answer

A negative demand shock, such as a decrease in consumer or government spending, shifts AD to the left. This results in lower aggregate price levels and lower real GDP in the short run as there is a decrease in the quantity of goods and services demanded at any given price level. It does not shift AS to the left as that would be a negative supply shock, such as an increase in production costs like wages or raw materials. Moving along the AD curve implies a change in the price level, but not the quantity of output demanded.

A Negative Demand Shock,holding Everything Else Constant