A fall in investor confidence causes the equilibrium level of output to fall

What will be an ideal response?

The initial excess of leakages over injections caused by low investment spending is corrected by a contraction in output, income, and saving. At E1, leakages and injections are again equal (table 9.16 chapter 9)

But at the start of the Great Depression, the 1929 stock market crash and other events
caused business and investor confidence to plummet. (Consumer confidence and financial
wealth also plummeted, but we are simplifying the story by concentrating on firms.) Producers
became very uncertain about whether they would be able to sell what they produced, so they
cut back radically on their investment spending. This is modeled in Figure 9.16 as a drop in aggregate demand caused by a drop in intended investment from 140 to 60. (Note that 60 is the number used in Table 9.3, so that AD1 in Figure 9.16 is identical to the AD curve in Figure
9.12.) With the drop in AD, income of 800 is no longer an equilibrium. Consistent with the adjustments toward equilibrium that we just discussed, output, income, and spending contract until a new equilibrium (E1) is reached at a level of 400.