The downturn in the auto industry will reduce the demand for the product in this economy. The economy will, at least in the short term, enter a recession. This would suggest that:

a. GDP will fall.

b. The unemployment rate will rise.

c. The government defi cit will increase. Income tax receipts will fall, and government expenditures on social welfare programs probably will increase.

d. Interest rates should fall. The contraction in the economy will reduce the demand for credit.

Moreover, the lower infl ation rate will reduce nominal interest rates.

 LO.1