Starting from Potential Output, If Consumer Confidence Decreases and Consumers

question 43

Multiple Choice

Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will shift the ______ curve to the left and generate ______.

• A)aggregate demand; a recessionary output gap
• B)aggregate supply; a recessionary output gap
• C)aggregate demand; an expansionary output gap
• D)aggregate supply; an expansionary output gap

---

Definitions:

Coase Theorem Solution

A theory suggesting that if trade or negotiation over property rights is allowed without cost, parties can reach an agreement regarding the allocation of resources regardless of the initial allocation.

Mutually Agreeable

A situation or outcome in negotiations or agreements that all parties involved accept and are satisfied with.

Cap-And-Trade

An environmental policy tool that aims to reduce pollutants by setting a limit (cap) on emissions and allowing companies to buy and sell permissions (trade) to emit up to a certain limit, incentivizing pollution reduction.

Property Right

Legal rights to use, control, and derive benefits from a resource or property.