Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment. In the short run:

Question

Quizplus · Accepted Answer

When firms become more optimistic about future profitability, they are likely to invest more. This increase in investment raises aggregate demand, which, in a full employment economy, can lead to higher output and potentially lower unemployment in the short run as firms hire more workers to meet the increased demand.

Suppose the Economy Is at Full Employment and Firms Become