We can see the diminished seventh
chord on A, rather than as (VII7), as leading tone diminished
for V4 /3 in Ab major.
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We can speak of a "leading tone diminished" as from a diminished seventh chord not all notes move and resolve 'shrinking', but instead one or two notes stay in place when the chord resolves. A beautiful example of a leading tone diminished is at
the beginning of Schubert's
String Quintet in C major, D 956; you will find a mre detailed explanation
of the phenomenon there as well.
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