As world economies start to recover from the 2008 financial crisis and firms expect profits to increase,

Question

Quizplus · Accepted Answer

As firms expect profits to increase, they are likely to increase investment, which in turn would increase aggregate demand. Hence both investment and aggregate demand will increase. Option A is incorrect as an increase in investment would lead to an increase in demand and hence an increase in price level. Option C is incorrect as the short-run aggregate supply curve would shift rightward only if there is an increase in the factors of production or their productivity, indicating an increase in the economy’s capacity to produce goods and services. Option D is incorrect as an increase in investment would shift the aggregate demand curve to the right, not result in a movement up along the curve.

As World Economies Start to Recover from the 2008 Financial