Assuming an upward-sloping AS curve,if an economy is at full employment and consumption spending decreases while all other levels of spending remaining constant,then
A)Increased unemployment results.
B)Any GDP gap disappears.
C)Inventory levels are less than desired until a new equilibrium is reached.
D)Changes in consumption spending have no impact on GDP.

Question

Quizplus · Accepted Answer

Assuming an upward-sloping AS curve, a decrease in consumption spending while all other levels of spending remain constant would lead to a decrease in aggregate demand. In a situation where the economy is already at full employment, a decrease in aggregate demand leads to an increase in unemployment as firms reduce production and lay off workers to adjust to the decrease in demand.

Assuming an Upward-Sloping AS Curve,if an Economy Is at Full