Final answer:
The correct answer is 'b. AD curve shifts.' When consumption changes due to non-price level factors, it affects the overall demand for goods and services, causing the aggregate demand curve to shift either to the left or to the right in the AD-AS model, rather than moving along a single curve.
Step-by-step explanation:
If consumption changes because of a change in a factor other than the price level, the correct response is that the aggregate demand (AD) curve shifts. This type of change in consumption could be due to variations in consumer confidence, changes in interest rates, taxes, or levels of income, none of which are related to the price level itself. Since these factors impact the overall demand for goods and services in an economy, they cause the aggregate demand curve to shift either to the left or to the right in the AD-AS model.
For instance, if there is a decline in consumer confidence that leads to less consumption and more saving, the AD curve would shift to the left. This leftward shift indicates a decrease in aggregate demand, leading to a lower equilibrium output and higher unemployment. It moves the economy away from full employment and can lead to disinflation, a decline in the inflation rate, or in rare cases, deflation. The long-run aggregate supply (LRAS) curve, which is vertical at potential GDP, remains unaffected by shifts in AD in the long run.
Therefore, option 'b' is the correct answer: b. AD curve shifts.