The economy shown here begins at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. This leads to:

A)a new real interest rate of 3%.
B)unexpected inflation of 1%.
C)a new output gap of 1%.
D)an unchanged interest rate.

Question

The economy shown here begins at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. This leads to:

A)a new real interest rate of 3%. 
B)unexpected inflation of 1%. 
C)a new output gap of 1%. 
D)an unchanged interest rate.

Quizplus · Accepted Answer

The Answer of The economy shown here begins at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. This leads to:

A)a new real interest rate of 3%. 
B)unexpected inflation of 1%. 
C)a new output gap of 1%. 
D)an unchanged interest rate.

The Economy Shown Here Begins at a 0% Output Gap