Question

If the economy is initially in equilibrium at full employment real GDP (QN), and a stock market crash reduces household wealth and lowers investor confidence, ceteris paribus, the ____________ curve will shift to the ____________ resulting in a ____________ price level (P), ____________ output/real GDP level (Q), and ____________ unemployment level (U).

Answer 1

Answer: aggregate demand; left; lower; lower; higher

Step-by-step explanation:

If the economy is initially in equilibrium at full employment real GDP (QN), and a stock market crash reduces household wealth and lowers investor confidence, ceteris paribus, the (aggregate demand) curve will shift to the (left) resulting in a (lower) price level (P), (lower) output/real GDP level (Q), and (higher) unemployment level (U).

It should be noted that the crash in the stock market will lead to lesser funds in the economy and lessee funds with households and this will lead to reduction in the demand for goods which will shift the demand curve to the left.

aggregate demand; left; lower; lower; higher