The Conference Board publishes the Consumer Confidence Index (CCI) every month based on a survey of 5,000
Question:
The Conference Board publishes the Consumer Confidence Index (CCI) every month based on a survey of 5,000 representative U.S. households. It is used by many economists to track the state of the economy. A press release by the Board on December 27, 2016, stated: “The Conference Board Consumer Confidence Index , which had increased considerably in November, posted another gain in December. The Index now stands at 113.7 (1985 = 100), up from 109.4 in November.”
a. As an economist, is this news encouraging for economic growth?
b. Explain your answer to part a with the help of the AD–AS model. Draw a typical diagram showing two equilibrium points (E1) and (E2). Label the vertical axis “Aggregate price level” and the horizontal axis “Real GDP.” Assume that all other major macroeconomic factors remain unchanged.
c. How should the government respond to this news if the economy is below potential output? If it is above potential output?
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