Which of the following could cause equilibrium GDP to fall?
A) an increase in autonomous investment
B) a downward shift in the saving function
C) an increase in amounts saved along an existing saving function
D) a downward shift in the consumption function
E) an increase in the nation's population

Question

Quizplus · Accepted Answer

A downward shift in the consumption function would reduce aggregate demand and, therefore, equilibrium GDP. Choices A and C would increase aggregate demand and output, while choice B would have no effect on aggregate demand or output. Choice E would increase the potential level of output (i.e., the long-run trend), but it would not affect equilibrium GDP unless accompanied by an increase in aggregate demand.

Which of the Following Could Cause Equilibrium GDP to Fall