Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will shift the ______ curve to the left and generate ______.
A)aggregate demand; a recessionary output gap
B)aggregate supply; a recessionary output gap
C)aggregate demand; an expansionary output gap
D)aggregate supply; an expansionary output gap

Question

Quizplus · Accepted Answer

A decrease in consumer confidence leads to reduced consumer spending, shifting the aggregate demand curve to the left, resulting in a recessionary output gap.

Starting from Potential Output, If Consumer Confidence Decreases and Consumers