Chapter 17, Problem 4MCQ

To determine

The question requires us to determine the factor which reduces the aggregate demand.

Explanation of Solution

A fall in aggregate demand causes the aggregate demand curve to shift to the left. Aggregate demand curve shifts to the left due to the following changes:

1. Pessimistic expectations of consumers and firms
2. A fall in wealth
3. A fall in the size of the existing stock of physical capital
4. contractionary fiscal policy and monetary policy

A decrease in the stock market lowers the value of wealth and causes the aggregate demand to fall.

Option “a” is correct.