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 the 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, the pessimism and resulting decrease in demand will lead to lower price expectations, causing the short-run aggregate supply (AS) to shift right as firms adjust to lower expected prices.

Scenario 14-2 The Economy Is in Long-Run Equilibrium. Suddenly, Due to Corporate