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Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level,...

Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if consumer confidence decreases.

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As the consumer confidence decreases consumers are likely to spend less. This decreases consumption spending and therefore the aggregate demand decreases. Aggregate demand curve shifts to the left and there is a movement from E to F. In the short run the price level decreases to P1 and the real GDP decreases to Y1. as a result of reduced production there is an increase in the unemployment in the economy in the short run.

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