Suppose that as a result of expectations of lower sales in the future, a decrease in autonomous business investment causes aggregate demand to shift from AD0 to AD1 as shown in Figure 10.1. Which of the following statements is true?
A. According to Keynesian theory, additional decreases in aggregate demand will occur.
B. In the absence of any additional decreases in investment, the equilibrium will remain at Q1 indefinitely.
C. The GDP gap will be eliminated by the multiplier.
D. According to Keynesian theory, the economy will quickly adjust back to full employment.
Answer: A
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