Within the framework of the AD/AS model,if consumers and investors become more pessimistic about the future direction of the economy,this will lead to a(n)
A)increase in aggregate demand.
B)decrease in aggregate demand.
C)increase in long-run aggregate supply (LRAS shifts to the right).
D)reduction in the natural rate of unemployment.

Question

Quizplus · Accepted Answer

A decrease in consumer and investor optimism would lead to a decrease in aggregate demand, as people would reduce their spending and investment in response to their perception of a weaker economy. This would result in a leftward shift of the AD curve. It would not affect LRAS or the natural rate of unemployment in the short run.

Within the Framework of the AD/AS Model,if Consumers and Investors