Yes, a leftward shift of aggregate demand can indeed help eliminate a GDP gap by bringing the economy closer to its full-employment output level.
To explain further:
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Aggregate Demand (AD): This represents the total demand for goods and services within an economy at a given overall price level and in a given time period. It can be influenced by various factors such as consumer spending, business investment, government spending, and net exports.
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GDP Gap: This refers to the difference between an economy's actual output (GDP) and its potential output (full-employment GDP). A negative GDP gap indicates that the economy is underperforming, with resources not being fully utilized.
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Leftward Shift of AD: When aggregate demand decreases, it generally leads to a lower overall level of economic activity. This can occur due to reduced consumer spending, lower investment, reduced government spending, or a decline in net exports.
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Achieving Full Employment: In a situation where the economy is producing beyond its capacity (often due to demand-pull inflation or overheating), a leftward shift in aggregate demand can help correct this by reducing pressure on resources, thereby stabilizing prices and employment.
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Equilibrium: By effectively reducing demand, the economy can return to its long-run aggregate supply (LRAS) level, which corresponds to full employment.
Thus, a leftward shift of aggregate demand can help to close a GDP gap, particularly in circumstances of overproduction or inflationary pressures, helping bring the economy back to a sustainable level of output that reflects full employment.