Suppose that a statement by the governor of the Bank of Canada about the state of the economy causes a loss of consumer confidence. What will be the long-run impact on the economy if the government allows the economy to adjust without a policy response?

A. Output will rise above its initial level in the long run and the price level will also rise.

B. Output will return to its initial level in the long run but the price level will be lower.

C. Output will return to its initial level in the long run but the price level will be higher.

D. Output will fall below its initial level in the long run and the price level will decline.

Answer rating: 100% (QA)

Option B Lower consumer confidence will lower aggregate demand AD in short run s... View the full answer