Question

According to the theory of new classical economics, if business sentiment and investment spending decrease, the aggregate demand curve ________ and the price level falls, while aggregate output _________.

Answer 1

Answer:

The correct way to answer the question: According to the theory of new classical economics, if business sentiment and investment spending decreases, the aggregate demand curve: shifts to the left and the price level falls, while aggregate output: decreases.

Explanation:

The balance of an economy, anywhere in the world, is pretty complex thing. In order to understand both the short-term, and long-term ways in which the economy of a country may respond to different factors, but most especially to GDP, which is the measure of how much, and how well, a country is producing and supplying a demand for certain goods and services, it is necessary to understand both a theory known as the short-term Keynesian analysis and also the neoclassical theory of economics, which applies to long-term macroeconomics. In the case shown above, the point of start is the potential GDP, which will mark the real GDP of a country. The second point is the aggregate supply and demand markers that indicate how an economy is doing with respect to potential GDP. If investement is not placed into an economy, and business sentiment decreasese, it means that productivity will drop, and the aggregate demand curve turns to the left as many other factors are also driven down. Since aggregate output means the amount that is produced in goods and services, the lesser the business interest and spending, the lesser production there will be.