Suppose Americans become pessimistic about the future of the economy and, as a result, reduce their current consumption expenditures. Which of the following would you expect to occur as a result of this change?

A) In the short run, unemployment will increase and inflation will fall.
B) In the short run, unemployment will increase and inflation will rise.
C) In the short run, unemployment will decrease and inflation will rise.
D) In the short run, unemployment will decrease and inflation will fall.

Question

Fanny Velazquez · Accepted Answer

Final Answer : A, Explanation :  When Americans reduce their consumption expenditures, demand for goods and services falls. This leads to decreased production, which in turn can cause companies to lay off workers, increasing unemployment. With lower demand, prices may also decrease or rise more slowly, leading to lower inflation.

Definitions

Learning Objectives

Learning Objectives

Related questions