Suppose a fall in stock prices makes people feel less wealthy. What are the effects of this decrease in wealth?

Select one:

a. decreased consumption, shown as a movement to the left along a given aggregate- demand curve

b. decreased consumption, which shifts the aggregate-demand curve to the left

c. increased in consumption, which shifts the aggregate-demand curve to the right

d. increased consumption, shown as a movement to the right along a given aggregate-demand curve

Expert Solution

Correct option - b

Consumption depends on wealth and decrease in wealth decreases consumption spending which leads to decrease in aggregate demand that shifts aggregate demand leftward.

Rahul Sunny answered 2 years ago

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