The impact of Hurricane Katrina on consumers in the economy was to make them very pessimistic about their future incomes.How does this increased pessimism affect the aggregate demand curve?
A)This will move the economy up along a stationary aggregate demand curve.
B)This will move the economy down along a stationary aggregate demand curve.
C)This will shift the aggregate demand curve to the left.
D)This will shift the aggregate demand curve to the right.

Question

Quizplus · Accepted Answer

When consumers become more pessimistic about their future incomes, they tend to reduce their spending. This means that consumption expenditures decrease, leading to a decrease in aggregate demand. As a result, the aggregate demand curve will shift to the left.

The Impact of Hurricane Katrina on Consumers in the Economy