An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.
A) up; rise
B) up; fall
C) down; rise
D) down; fall

Question

Quizplus · Accepted Answer

An increase in investment spending will shift the aggregate demand function to the right/upward, indicating an increase in the level of aggregate output at the equilibrium. Therefore, the correct answer is A, which says that the aggregate demand function will shift up, and equilibrium level of aggregate output will rise.

An Increase in Investment Spending Because Companies Become More Optimistic