Suppose people begin defaulting on student loans, and this leads to banks failing. This will most...

Suppose people begin defaulting on student loans, and this leads to banks failing. This will most likely result in the ____________ curve shifting to the _________.

Question 21 options:

	Long-run aggregate supply; right
	Long-run aggregate supply; left
	Aggregate demand; right
	Aggregate demand; left

Expert Solution

It has been stated that people had begun defaulting on student loans and this has resulted in failure of banks.

Banks lend funds to businesses and households for investment and consumption spending.

So, failure of banks will reduce the availability of funds for households and businesses for investment and consumption spending.

This will result in a reduction in investment and consumptiton spending.

Both of these are components of aggregate demand.

So, aggregate demand will decrease.

When aggregate demand decreases then aggregate demand curve shifts to the left.

Hence, the correct answer is the option (4) [Aggregate demand, left].

Rahul Sunny answered 2 years ago

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