-Suppose the economy is at point B. If firms expect profits will be higher in the future, to what point might the economy's move in the short run?
A) It stays at point B.
B) It shifts to a point such as A.
C) It shifts to a point such as C.
D) None of the above answers are correct because it is the SAS curve that shifts, not the AD curve.

Question

-Suppose the economy is at point B. If firms expect profits will be higher in the future, to what point might the economy's move in the short run?
A) It stays at point B. 
B) It shifts to a point such as A. 
C) It shifts to a point such as C. 
D) None of the above answers are correct because it is the SAS curve that shifts, not the AD curve.

Quizplus · Accepted Answer

When firms expect higher profits in the future, they are likely to increase investment in anticipation of these profits. This increase in investment shifts the aggregate demand (AD) curve to the right, moving the economy to a higher level of output and price, which is represented by a shift to a point such as C.

-Suppose the Economy Is at Point B