Question

Most of the countries in the world suffered long and deep losses of output and employment between 1930 and 1935, which in turn meant fewer purchases of U.S. goods and services. Which of the following indicates the appropriate change in the U.S. economy?

A. Aggregate demand shifted to the left
B. Aggregate demand shifted to the right
C. The economy moved up along the aggregate demand curve
D. The economy moved down along the aggregate demand curve

Answer 1

The statement that indicates appropriate change in U.S. economy is:

Option A: Aggregate demand shifted to the left.

Step-by-step explanation:

'Aggregate demand (AD)' is based on consumption, the investment, spends by the government and net exports.

When the consumer's total spends decline, the AD curve shifts to the left. A consumer may spend less due to many reasons like rise in his cost of living or government taxes getting increased. So, consumers decide to spend 'less' money and save more as they expect prices would rise in the future.

As per the given statement, 'less' goods and services were purchased which means aggregate curve would shift left.