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.

-Refer to Financial Crisis.In the long run,if the Fed does not respond,the change in price expectations created by the crisis shifts
A)aggregate demand right.
B)aggregate demand left.
C)short-run aggregate supply right.
D)short-run aggregate supply left.

Question

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.

-Refer to Financial Crisis.In the long run,if the Fed does not respond,the change in price expectations created by the crisis shifts
A)aggregate demand right.
B)aggregate demand left.
C)short-run aggregate supply right.
D)short-run aggregate supply left.

Quizplus · Accepted Answer

In the long run, if the Fed does not respond, the pessimism will lead to lower price expectations, which will eventually shift the short-run aggregate supply curve to the right as firms adjust to lower expected prices.

Pessimism Suppose the Economy Is in Long-Run Equilibrium. Then Because of of Corporate