Suppose the economy is producing at the natural rate of output.A decrease in consumer and business confidence will cause ________ in real GDP in the short run and ________ in the aggregate price level in the short run,everything else held constant.
A)an increase; an increase
B)a decrease; a decrease
C)no change; an increase
D)no change; a decrease

Question

Quizplus · Accepted Answer

A decrease in consumer and business confidence will lead to a decrease in aggregate demand, which will cause a decrease in real GDP in the short run. The decrease in aggregate demand will also cause a decrease in the aggregate price level in the short run, as there will be less demand for goods and services. Therefore, the correct answer is (B) a decrease; a decrease.

Suppose the Economy Is Producing at the Natural Rate of Output.A