Canadian businesses expect future profits to rise.Starting from a position of long- run equilibrium, what effect does this event have on Canada's economy in the short run?
A)Real GDP increases and the price level rises.
B)Real GDP decreases and the price level falls.
C)Real GDP increases and the price level falls.
D)Real GDP decreases and the price level rises.
E)There is no change in either real GDP or the price level.

Question

Quizplus · Accepted Answer

When Canadian businesses expect future profits to rise, they are likely to increase investment. This increase in investment shifts the aggregate demand curve to the right, leading to an increase in both real GDP and the price level in the short run, as described by option A.

Canadian Businesses Expect Future Profits to Rise