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Suppose Consumption Growth Suddenly Falls as a Result of a Decline

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Suppose consumption growth suddenly falls as a result of a decline in consumer confidence. With the aid of a diagram including the AD and LRAS curves, explain how the change in consumption growth affects the inflation rate and the real growth rate in the long run.


Definitions:

Growth Rate

The rate at which an organism or population increases in size, often measured as a percentage of increase over a specific period of time.

Death Rate

The ratio of deaths in an area to the population of that area; expressed per 1000 per year.

Birthrate

The number of live births per thousand of population per year.

Biotic Potential

The maximum reproductive capacity of an organism under optimum environmental conditions.

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