Question

Many financial analysts and economists eagerly await the press releases for the reports on the home price index and consumer confidence index. What would be the effects of a negative report on both of these? What about a positive report?

Short answer

A negative report on both of these would reduce the equilibrium GDP and price level.

A positive report on both of these would increase the equilibrium GDP and price level.

Step-by-step solution

Step 1. Definitions.

The total quantity of output (i.e. real GDP) firms will produce and sell is aggregate supply

The amount of total spending on domestic goods and services in an economy is aggregate demand.

Step 2. A negative report.

If the price of houses declines, this means consumer spending has reduced which shifts the AD curve to the left. A negative report on both of these would reduce the equilibrium GDP and price level.

Step 3. A positive report.

If the price of houses increases, this means consumer spending has risen which shifts the AD curve to the right. A positive report on both of these would increase the equilibrium GDP and price level.