Question

How does the aggregate-demand curve shift when increased uncertainty and pessimism about the future of the economy lead firms to desire less investment spending which shifts the aggregate-demand curve to the left?

a. The curve does not shift at all.
b. The curve shifts to the right.
c. The curve shifts to the left.
d. The curve first shifts to the right and then shifts to the left.

Answer 1

The correct answer is C) The curve shifts to the left because if firms invest less, they will produce less goods and services, that is to say, the will produce less ouput, which will cause a shift of the aggregate demand to left, because the Y axis of the AD Curve represents output.