Question

In: Economics

Which of the following shifts aggregate demand to the left? a. The price level rises. b....

Which of the following shifts aggregate demand to the left?
a. The price level rises.
b. Interest rates fall.
c. The dollar depreciates for some reason other than a change in the price level.
d. Stock prices fall for some reason other than a change in the price level.

Solutions

Expert Solution

Option D.

  • When the stock prices fall for some reason other than a change in the price level, the aggregate demand shifts to the left.
  • When the stock prices fall, these stocks become less liquid and the people are forced to increase their savings rather than spending them.
  • This is because the drop in stock prices reduces the wealth of people and they are forced to spend less on every price level.

Rahul Sunny answered 2 years ago
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