Suppose the economy is in long-run equilibrium.

Scenario 1 - Pessimism

Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time.

Scenario 1 - Pessimism. Which curve shifts and in which direction?

aggregate demand shifts right

aggregate demand shifts left

aggregate supply shifts right.

aggregate supply shifts left.

Solutions

Expert Solution

Ans) the correct option is b) aggregate demand shifts left

Since people become pessimistic so they will consume less. The decrease in consumption will decrease the aggregate demand and shift it to the left.

Rahul Sunny answered 1 year ago

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