Brazil Falls into Recession A decade ago, Brazil had rapid growth but now its economy is experiencing a slowdown with investment falling and inventories increasing. Potential GDP growth rate has...

Brazil Falls into Recession

A decade ago, Brazil had rapid growth but now

its economy is experiencing a slowdown with

investment falling and inventories increasing.

Potential GDP growth rate has slowed. Business

and consumer confidence has fallen.

Source: BBC News, August 29, 2014

a. Explain the effect of a decrease in investment

on real GDP and potential GDP.

b. Explain how business and consumer confidence influences aggregate expenditure.