People holding more cash because of a decrease in consumer confidence would cause:
A) a decrease in both the growth rate of output and inflation.
B) a decrease in the growth rate of output and an increase in the inflation rate.
C) an increase in the growth rate of output and a decrease in the inflation rate.
D) an increase in both the growth rate of output and inflation.

Question

Quizplus · Accepted Answer

When people hold more cash because of a decrease in consumer confidence, it decreases the amount of money that is available for spending, which leads to a decrease in aggregate demand. This, in turn, leads to a decrease in both the growth rate of output (since businesses produce less) and inflation (since there is less money chasing goods and services in the economy). Therefore, Option A is the correct choice.

People Holding More Cash Because of a Decrease in Consumer