Chapter 17, Problem 3MCQ

To determine

The question requires us to determine the factor which is measured by the consumer confidence index.

Explanation of Solution

The consumer confidence index measures the impact on consumer spending and savings when the confidence of the consumer changes in an economy.

If the government announces that the interest rate will fall soon, the consumers prefer to hold their money in their hands, and thus, the savings in the market will fall while consumer spending will increase.

Any change in the confidence of consumers and firms will change the level of spending and investment in the market and will cause the aggregate demand in the economy to change.

Thus, option “a” is correct.