The recent housing crisis significantly impacted the aggregate demand curve by leading to a decrease in consumer confidence and spending. As housing prices plummeted, many homeowners found themselves underwater on their mortgages, greatly affecting their wealth and financial stability.
With reduced wealth, households cut back on spending, which is a major component of aggregate demand. This decline in consumption led to a shift to the left in the aggregate demand curve, indicating a decrease in overall demand for goods and services in the economy.
Additionally, the crisis caused a tightening of credit conditions, as financial institutions became more risk-averse. This limited access to credit made it harder for consumers and businesses to borrow money for purchases and investments, further suppressing demand.
In summary, the housing crisis adversely affected the aggregate demand curve by reducing consumer spending and restricting access to credit, resulting in slowed economic activity.