Answer to Question #43429 in Macroeconomics for Annita walker

Question

Does a reduction in consumption affect the aggregate supply or the aggregate demand. Explain

Answer 1

The aggregate demand is the volume of production of the goods and services that consumers are willing to purchase at the current price level. Aggregate demand consists of four components: private spending on consumption (C), investments (I), government spending on goods and services, wages (G) and net exports (NE), which is the difference between expenditure of the foreigners on domestic goods and services (exports) and domestic spending on foreign goods (imports). So we can write an equation:

AD=C+I+G+NE

So, this decrease in consumption will cause the aggregate demand curve to shift to the left.