Decrease in Consumption Shifts Aggregate Demand Inward

Steps:

• Decrease in consumption reduces total spending, shifting AD curve left (inward).
• New equilibrium occurs at intersection of shifted AD and short-run AS, with lower output.
• Lower output level corresponds to higher unemployment via Okun's law.
• Price level falls, causing movement down along the AS curve to the new equilibrium.

Why C is correct:

• Inward AD shift from lower consumption creates a recessionary gap, reducing real GDP and raising unemployment; downward movement along AS reflects falling prices.

Why the others are wrong:

• A: Outward AS shift increases output (lowers unemployment); movement down AD is price-driven, not consumption change.
• B: Upward movement along AD increases quantity demanded (lowers unemployment); inward AS raises prices, not tied to consumption.
• D: Inward AS shift (supply shock) decreases output but stems from production costs, not consumption; upward AS movement contradicts equilibrium adjustment.

Final answer: C