Final answer:
The correct answer is that a fully anticipated decrease in aggregate demand moves the economy down along its vertical long-run aggregate supply curve. This self-correction mechanism brings the economy back to potential GDP without shifting the long-run aggregate supply curve to the left or right. Option b is the answer.
Step-by-step explanation:
New classical economists advocate that fully anticipated decreases in aggregate demand do not shift the long-run aggregate supply (LRAS) curve. Instead, the economy moves down along its vertical LRAS curve following such a decrease. The LRAS curve represents the level of potential GDP and is not affected by changes in demand in the long run. Therefore, a decrease in aggregate demand, such as one caused by a decline in consumer confidence, results in lower output and higher unemployment temporarily, but does not affect the economy's capacity for production.
Accordingly, the correct answer is b. moves the economy down along its vertical long-run aggregate supply curve. In the neoclassical perspective, aggregate demand shifts will ultimately self-correct as wages and prices adjust, with the economy returning to its potential GDP without shifting the LRAS curve to the left or the right.