What is the typical outcome on aggregate demand when consumer confidence declines?

When consumer confidence declines, individuals and households tend to reduce their spending as they become more uncertain about their financial future. This behavior leads to a decrease in consumption, which is a significant component of aggregate demand. As consumer spending diminishes, businesses may also decide to cut back on investments and hiring due to lower anticipated sales, further contributing to a decline in overall economic activity.

This downward shift in consumer behavior results in a decrease in aggregate demand because the total spending in the economy contracts. With less consumer confidence, the willingness to make large purchases decreases, leading to an economic slowdown which is reflected in the aggregate demand curve moving to the left.

In contrast, stability, increases, or shifts to the right in aggregate demand would suggest an environment where consumer confidence is either stable or on the rise, encouraging more spending and investment, which is not the case when confidence declines.