Analyze the SR and LR impact of a FALL IN CONSUMER CONFIDENCE (that effects spending) on the economy.Assume that the economy starts in General Equilibrium.

What is the impact on economic activity in Short Run (SR) ONLY?Provide a detailed discussion (with economic reasoning of the transmission mechanism) of the impact that includes the effect on Y, r, I, C, employment, and L(i,Y).NO GRAPH!

Now discuss the impact on the economy over time as the economy self-corrects (i.e. discuss what happens over time into the LR).Just discuss, no graph needed.

Now show the impact of the fall in consumer optimism in the on the IS-LM diagram and the AD-AS diagram.No discussion. Make sure to clearly show the SR impact and the LR impact on both diagrams.

Now use the "time diagrams", to show the impact of this shock over time on the following 2 variables: real interest rate (r) and real money demand.