What happens when consumer expectations are negatively affected?

When consumer expectations are negatively affected, it typically leads to a decrease in aggregate demand. This occurs because consumers may become more uncertain about their financial futures, leading to reduced spending and increased savings. When consumers expect economic conditions to worsen—such as expecting a recession or job losses—they tend to cut back on expenditures, which in turn affects the overall demand for goods and services in the economy.

This behavior reflects the fundamental principle of consumer confidence; when individuals feel optimistic about their circumstances, they're more likely to spend, thereby pushing aggregate demand upward. Conversely, negative expectations create a climate of caution that stifles consumption, making businesses less likely to invest and hire, which further diminishes aggregate demand. An overall reduction in consumer spending negatively impacts economic performance, as consumer spending is a significant component of aggregate demand.

In summary, the decrease in consumer confidence leads directly to a decrease in aggregate demand as individuals adjust their spending behavior in response to their expectations about the economy.