In which case can we be sure aggregate demand shifts left overall?
A)People want to save more for retirement and the Fed increases the money supply.
B)People want to save more for retirement and the Fed decreases the money supply.
C)People want to save less for retirement and the Fed increases the money supply.
D)People want to save less for retirement and the Fed decreases the money supply.

Question

Quizplus · Accepted Answer

When people want to save more for retirement, they spend less, which decreases aggregate demand. If the Fed decreases the money supply, it typically leads to higher interest rates, further discouraging spending and investment, thus also decreasing aggregate demand. Both actions combined ensure a leftward shift in aggregate demand.

In Which Case Can We Be Sure Aggregate Demand Shifts