If people's expectations about future income improve so they think their future income will be higher than previously believed,then the AD curve
A)will not change until income actually rises.
B)will shift leftward because people will spend less now.
C)will shift rightward because people will increase spending now.
D)and the AS curve will both shift leftward because people will increase their saving.
E)will not shift,but potential GDP will increase.

Question

Quizplus · Accepted Answer

When people's expectations about future income improve, they will increase their spending now, which will shift the AD curve to the right. This is because they will have more confidence in their future income and feel comfortable spending more in the present. This will lead to an increase in demand and a higher equilibrium level of output and prices.

If People's Expectations About Future Income Improve So They Think