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The Conference Board publishes the Consumer Confidence Index (CCI) every month based on a survey of...

The Conference Board publishes the Consumer Confidence Index (CCI) every month based on a survey of 5,000 representative U.S. households. It is used by many economists to track the state of the economy. A press release by the Board on June 28, 2011, stated: “The Conference Board Consumer Confidence Index, which had declined in May, decreased again in June. The Index now stands at 58.5 (1985 = 100), down from 61.7 in May.” Using the AS-AD model, sketch a typical diagram showing two equilibrium points, from April to June. Label the vertical axis “Aggregate price level” and the horizontal axis “Real GDP.” Assume that all other major macroeconomic factors remain unchanged. Based on your diagram, choose the correct statement.

A fall in consumer confidence leads to a leftward shift of the aggregate demand curve, resulting in a decrease in real GDP and an increase in the price level.

A fall in consumer confidence leads to a leftward shift of the aggregate supply curve, resulting in a decrease in real GDP and an increase in the price level.

A fall in consumer confidence leads to a leftward shift of the aggregate demand curve, resulting in a decrease in real GDP and in the price level.

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