Which of the following would most likely move the economy into a recession in the short term?

• A. A significant decrease in consumer spending
• B. An increase in government investment
• C. A reduction in interest rates by the central bank
• D. A rise in exports to foreign countries

Answer: (A)

Verified step by step guidance

1. Step 1: Understand what a recession is — a period of declining economic activity, typically marked by falling GDP, rising unemployment, and reduced consumer spending.
2. Step 2: Analyze how consumer spending affects the economy. Since consumer spending is a major component of aggregate demand, a significant decrease in consumer spending reduces overall demand, which can slow down economic growth.
3. Step 3: Consider the effects of an increase in government investment. This usually boosts aggregate demand by increasing public spending, which tends to stimulate economic growth rather than cause a recession.
4. Step 4: Evaluate the impact of a reduction in interest rates by the central bank. Lower interest rates generally encourage borrowing and spending by consumers and businesses, which supports economic expansion.
5. Step 5: Assess the effect of a rise in exports to foreign countries. Increased exports raise aggregate demand by bringing more income into the economy, which also helps prevent a recession.