Scenario 14-2. The economy is in long-run equilibrium. Suddenly, due to corporate scandals, international tensions, and the loss of confidence among policymakers, citizens become pessimistic concerning the future. They maintain this level of pessimism for a long time.
-Refer to Scenario 14-2. In the long-run, the change in price expectations caused by pessimism leads to which of the following shifts?
A)Long-run AS shifts left.
B)Long-run AS shifts right.
C)Short-run AS shifts right.
D)Short-run AS shifts left.

Question

Quizplus · Accepted Answer

In the long run, pessimism can lead to lower price expectations, which can cause the short-run aggregate supply (AS) curve to shift to the right as firms adjust to lower expected prices.