In the aggregate demand-aggregate supply model, if entrepreneurs become convinced that future profitability of capital has increased,
A)current output will fall, but the price level will rise.
B)current output will rise, but the price level will fall.
C)current output and the price level will both rise.
D)current output and the price level will both fall.

Question

Quizplus · Accepted Answer

When entrepreneurs believe future profitability of capital has increased, they are likely to invest more, shifting the aggregate demand curve to the right. This results in both higher output and higher price levels.

In the Aggregate Demand-Aggregate Supply Model, If Entrepreneurs Become Convinced