Question

Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level

of pessimism for some time.____ 11. Refer to Pessimism. Which curve shifts and in which direction?

Answer 1

The correct answer is aggregate demand curve shifts to the left.

Step-by-step explanation:

Suppose the economy is in long-run equilibrium. Now, if there are corporate scandals, international tensions, loss of confidence, etc this will cause the aggregate demand to decline causing the demand curve to shift to the left.

Corporate scandals will have an adverse effect on the confidence of the investors. Investment spending will decline. This will cause the aggregate demand curve to shift to the left. As consumer confidence declines, people will spend causing aggregate demand to decline as the consumption spending falls.