Question: How will a fall in consumer confidence affect the rate of inflation? In Chapter 9, Short-Term Economic Fluctuations and Fiscal Policy, and Chapter 10, Stabilizing
How will a fall in consumer confidence affect the rate of inflation?
In Chapter 9, Short-Term Economic Fluctuations and Fiscal Policy, and Chapter 10, Stabilizing the Economy: The Role of the Fed, we saw that changes in spending can create expansionary or recessionary gaps.
Therefore, based on the discussion above, we can conclude that changes in spending also lead to changes in the rate of inflation. If the economy is currently operating at potential output, what effect will a fall in consumer confidence that makes consumers less willing to spend at each level of disposable income have on the rate of inflation in the economy?
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