Which of the following is most likely to throw an economy into a recession?
A) a reduction in the real interest rate
B) an unanticipated increase in short-run aggregate supply
C) an unanticipated increase in aggregate demand
D) an unanticipated reduction in aggregate demand

Question

Quizplus · Accepted Answer

An unanticipated reduction in aggregate demand is likely to lead to a decrease in output, employment, and income, and potentially cause a recession. This could occur due to factors such as a decrease in consumer spending, investment spending, or government spending. A reduction in the real interest rate (A) would likely stimulate economic activity, while an unanticipated increase in short-run aggregate supply (B) would also generally have a positive effect on the economy. An unanticipated increase in aggregate demand (C) could potentially lead to inflation if output cannot keep up with the increased demand, but would not necessarily cause a recession on its own.

Which of the Following Is Most Likely to Throw an Economy