To determine when aggregate demand shifts left overall, we need to analyze the scenarios provided.
A leftward shift in aggregate demand typically indicates a decrease in total spending in the economy. This can happen when consumers and businesses reduce their consumption and investment, or when monetary policy restricts the money supply.
Let's review each option:
a. People want to save more for retirement and the Fed increases the money supply.
- In this case, if people are saving more, consumption is likely to decrease, which could shift aggregate demand left. However, the increase in the money supply could stimulate spending, potentially offsetting the effect. The net effect is uncertain.
b. People want to save more for retirement and the Fed decreases the money supply.
- Here, if people are saving more, consumption decreases, which would shift aggregate demand left. Additionally, a decrease in the money supply would likely reduce spending further, reinforcing the leftward shift in aggregate demand.
c. People want to save less for retirement and the Fed increases the money supply.
- In this scenario, if people save less, they are likely to spend more, which could increase aggregate demand. The Fed increasing the money supply would likely increase spending further, shifting aggregate demand to the right.
d. People want to save less for retirement and the Fed decreases the money supply.
- In this case, people saving less would likely mean more consumption, which would increase aggregate demand. However, if the Fed decreases the money supply, it could reduce spending and lead to a leftward shift. Again, the net effect is uncertain.
Considering the above analysis, the most clear case where aggregate demand shifts left overall is option b: "People want to save more for retirement and the Fed decreases the money supply." This scenario combines an increase in savings (decreasing consumption) with a reduction in the money supply, further decreasing aggregate demand.