Which statement explains how real shocks and aggregate demand shocks can reinforce and amplify one another?
A) During a boom,higher wealth and lower risk lead to lower consumer spending but higher business investment.
B) During a boom,higher wealth and greater risk lead to higher consumer spending but lower business investment.
C) During a recession,lower wealth and lower risk lead to lower consumer spending but higher business investment.
D) During a recession,lower wealth and greater risk lead to lower consumer spending and less business investment.

Question

Quizplus · Accepted Answer

During a recession, lower wealth and greater risk lead to both lower consumer spending and less business investment. This combination exacerbates the economic downturn, illustrating how real shocks (affecting wealth and risk perceptions) and aggregate demand shocks (affecting spending and investment) can reinforce and amplify each other's negative effects.

Which Statement Explains How Real Shocks and Aggregate Demand Shocks