When most consumers and firms reduce spending only because they expect other consumers and firms to reduce spending, and a recession results,
A)a self-correction has occurred.
B)an adverse aggregate supply shock has occurred.
C)a coordination failure has occurred.
D)a real-business downturn has occurred.

Question

Quizplus · Accepted Answer

A coordination failure has occurred when economic agents reduce spending based on the expectation that others will do the same, leading to a recession.

When Most Consumers and Firms Reduce Spending Only Because They