When consumers suddenly become more pessimistic about the economy,a negative aggregate demand shock shifts the:
A) LRAS curve inward,reducing the real growth rate in the short run.
B) LRAS curve outward,reducing the real growth rate in the short run.
C) AD curve inward,reducing the real growth rate in the short run.
D) AD curve outward,reducing the real growth rate in the short run.

Question

Quizplus · Accepted Answer

An increase in consumer pessimism leads to a negative aggregate demand shock, which will shift the AD curve inward. This will lead to a reduction in the real growth rate in the short run. The LRAS curve is unrelated to changes in aggregate demand, so choices A and B are incorrect. Choice D is also incorrect because a negative aggregate demand shock will not shift the AD curve outward.

When Consumers Suddenly Become More Pessimistic About the Economy,a Negative