Suppose a booming stock market encourages consumption spending to rise dramatically.What would be the most likely short-run impact?

Question

Quizplus · Accepted Answer

A booming stock market indicates economic growth and increased investor confidence, leading to higher stock prices and potentially more consumer spending. This would likely lead to inflation in the short-run as demand outstrips supply, but could also lead to a boost in GDP as production increases to meet the higher demand. A recession and falling prices (A) would be unlikely under these circumstances. A recession and rising prices (C) would be contradictory and is therefore an unlikely outcome. Additionally, the impact cannot be determined with certainty (D) is not the best answer, as we can make reasonable predictions given the information provided.

Suppose a Booming Stock Market Encourages Consumption Spending to Rise