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The Economy Shown Here Begins at a 0% Output Gap

Question 4

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The economy shown here begins at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. This leads to:
The economy shown here begins at a 0% output gap. Now suppose that consumers fear a recession and reduce their spending. This leads to: A) a new real interest rate of 3%. B) unexpected inflation of 1%. C) a new output gap of 1%. D) an unchanged interest rate.


A) a new real interest rate of 3%.
B) unexpected inflation of 1%.
C) a new output gap of 1%.
D) an unchanged interest rate.

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