Scenario 14-2
The economy is in long-run equilibrium. Suddenly, due to corporate scandals, a recession experienced by a major trading partner, 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, what does the change in price expectations caused by pessimism lead to?
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, pessimism can lead to lower price expectations, which can cause the short-run aggregate supply (AS) to shift right as firms adjust to lower expected costs.

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