If the consumer sentiment index turns down sharply over a period of several months, which of the following is most likely to occur in the near future?
A) an increase in aggregate demand and expansion in real output
B) a reduction in aggregate demand and a contraction in real output
C) a reduction in aggregate demand and expansion in real output
D) an increase in aggregate demand and a contraction in real output

Question

Quizplus · Accepted Answer

A decrease in consumer sentiment indicates that consumers are less optimistic about the economy and their own financial situation. This leads to a decrease in consumer spending, which is a component of aggregate demand. Therefore, option B is the most likely outcome where aggregate demand will reduce, resulting in a contraction in real output.

If the Consumer Sentiment Index Turns Down Sharply Over a Period