Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will generate a(n)________ gap and inflation will ________.
A)recessionary; increase
B)recessionary; decrease
C)expansionary; decrease
D)expansionary; increase

Question

Quizplus · Accepted Answer

When consumers become less confident about the future and decrease spending, the AD curve shifts leftward. This generates a recessionary gap and inflation will decrease.

Starting from Potential Output, If Consumer Confidence Decreases and Consumers