In recent years, the Aldorian economy experienced rapid economic expansion, driven by expansionary monetary policy and a boom in household borrowing. However, macroprudential authorities have recently introduced stricter borrowing requirements for residential mortgages and personal loans, aiming to cool the market. Industry experts warn that future GDP growth is likely to be constrained by this reduced access to household credit. Furthermore, if these tighter lending rules depress property values, a negative wealth effect is likely to suppress consumer confidence and aggregate demand.
Extract F states that "future GDP growth is likely to be constrained by this reduced access to household credit."
Using an AD/AS diagram to help you, explain the likely effect of "reduced access to household credit" upon real output and employment in Aldoria.
222 exam-style questions on AQA A Level Economics 2.2 How the macroeconomy works: the circular flow of income, aggregate demand/aggregate supply analysis and related concepts, covering 2.2.1 The circular flow of income, 2.2.2 Aggregate demand and aggregate supply analysis, 2.2.3 The determinants of aggregate demand, 2.2.4 Aggregate demand and the level of economic activity, 2.2.5 Determinants of short-run aggregate supply, and 2.2.6 Determinants of long-run aggregate supply. Each one has a worked solution and a mark scheme showing where the marks go.