Future Business Leader Achievments (FBLA) Economics Practice Exam

Which economic condition is likely to occur when there is a decrease in consumer confidence?

1. Increased spending in the economy

2. Higher levels of investment

3. Reduction in demand for goods and services

4. Stable inflation rates

The correct answer is: Reduction in demand for goods and services

A decrease in consumer confidence typically leads to a reduction in demand for goods and services. When consumers feel uncertain about the future, whether due to economic downturns, rising unemployment rates, or other financial worries, they tend to cut back on their spending. This behavior can stem from a fear of job loss or a general sense that it's safer to save money rather than spend it. As consumer confidence wanes, people prioritize essential purchases over luxuries, leading to a contraction in overall demand. This shift can result in reduced sales for businesses, causing them to adjust their production levels, which can further impact economic growth. The connection between consumer confidence and demand is a fundamental principle in economics, highlighting how consumer behavior directly influences economic activity. Understanding this relationship is crucial for predicting economic trends and making informed business decisions.