You are an economic adviser using the Fed model to analyze the economy. What is the effect of a fall in consumer spending on the economy?
A)a rise in the real interest rate, falling output, and unexpected deflation
B)a rise in the real interest rate, rising output, and unexpected inflation
C)an unchanged real interest rate, falling output, and unexpected deflation
D)a fall in the real interest rate, rising output, and unexpected inflation

Question

Quizplus · Accepted Answer

A fall in consumer spending reduces aggregate demand, leading to a fall in output and unexpected deflation. The real interest rate remains unchanged as the fall in demand is not expected to persist.

You Are an Economic Adviser Using the Fed Model to Analyze