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.What happens to the price level and real GDP in the short run?
A)both the price level and real GDP rise
B)the price level rises and real GDP falls
C)the price level falls and real GDP rises
D)both the price level and real GDP fall

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.What happens to the price level and real GDP in the short run?
A)both the price level and real GDP rise
B)the price level rises and real GDP falls
C)the price level falls and real GDP rises
D)both the price level and real GDP fall

Quizplus · Accepted Answer

In the short run, pessimism leads to decreased consumer and business spending, shifting the aggregate demand curve to the left. This results in both a lower price level and a decrease in real GDP.

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