Scenario 14-1
The economy is in long-run equilibrium. Suddenly, due to improved international relations, a boom experienced by a major trading partner, and the increased confidence of policymakers, citizens become more optimistic about the future and stay this way for a long time.
-Refer to the Scenario 14-1. Initially, which curve shifts in which direction?
A) AD shifts right.
B) AD shifts left.
C) Short-run AS shifts right.
D) Short-run AS shifts left.

Question

Quizplus · Accepted Answer

The increased optimism leads to an increase in aggregate demand (AD) as consumers, businesses, and investors increase their spending. Therefore, the AD curve shifts rightward. There is no reason for a shift in short-run aggregate supply (AS) in this scenario.

Scenario 14-1 The Economy Is in Long-Run Equilibrium. Suddenly, Due to Improved