-Suppose the economy is at point B. If firms expect profits will be higher in the future, to what point might the economy's move in the short run?
A) It shifts to a point such as C.
B) It shifts to a point such as A.
C) It stays at point B.
D) None of the above answers are correct because it is the SAS curve that shifts, not the AD curve.

Question

-Suppose the economy is at point B. If firms expect profits will be higher in the future, to what point might the economy's move in the short run?
A) It shifts to a point such as C. 
B) It shifts to a point such as A. 
C) It stays at point B. 
D) None of the above answers are correct because it is the SAS curve that shifts, not the AD curve.

Quizplus · Accepted Answer

If firms expect higher future profits, they are likely to increase investment, which shifts the aggregate demand (AD) curve to the right, moving the economy to a point like C in the short run.

-Suppose the Economy Is at Point B