Aggregate demand in On 45-degree line: constant output = aggregate demand 1972 5, AD AD (pre-crisis) AD (crisis) AD (trough) Initial fall in aggregate demand due to fall in investment late- 19 29/early-19 30 A: goods market equilibrium {1929] B : fall in investment = downward shift of AD C: fall in autonomous consumption = further downward shift of AD Subsequent fall in aggregate demand due to shift downwards in the consumption function and investment function 206bn 324bn Output in constant 1933 0.1 1929 C13 [trough] (peak) 1972 s' Y The multiplier process Aggregate demand, AD )me Decrease in investment of $1.5bn; investment falls from Ito 1' CO + 1' After multiplier process, output has fallen by $3.75bn; multiplier is 3.75/15 = 2.5 Output (income), Y