Question

A demand-side recession (i.e., a recession caused by a fall in aggregate demand) could be caused by:

Options:

	a collapse in wealth.
	a stock market collapse.
	a housing market crash.
	a fall in consumer or business confidence.
	an increase in taxes.
	an increase in interest rates.
	a rise in government spending.
	a tax cut.
	a decrease in exports.
	a fall in government spending.

Answer 1

Options D and F

• A demand side recession could be caused by factors like
• A fall in consumer or business confidence and
• An increase in interest rates
• A Recession means a decline in real GDP.
• It is an Economic measure which measures the confidence that consumers perceive about the general state of the Economy and their financial position.
• When consumers have less confidence they save more and spend less.
• As Interest rates are more, consumers inclined to save as returns from savings are higher.
• With less disposable income spent, as a result of increase in the interest rate, Economy slows down and inflation decreases.