Business, 02.04.2021 22:00 robert7248

Suppose firms become very optimistic about future business conditions and invest heavily in new capital equipment. Show the short-run effect of this optimism on the aggregate-demand curve.
Aggregate DemandAggregate SupplyLRASPrice LevelQuantity of OutputAggregate Demand Aggregate Supply LRAS
Which of the following reasons could explain why the aggregate quantity of output supplied changes?
A. Wages are not sticky.
B. The price level has risen.
C. Prices are sticky.
D. People have misperceptions about the price level.

Answers: 3

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Answer from: kenken2583

Aggregate Supply Curve = Shifts leftward.

Aggregate Demand Curve = Shifts Rightward.

In the short run, companies will become more optimistic and when they invest in new equipment, Aggregate supply curve shifts left because of the input prices of the new equipment.

Aggregate demand curve will shift right because of people will be optimistic about future business opportunities as well.

Reasons why aggregate quantity of output supplied changes.

B. The price level has risen.

C. Prices are sticky.

D. People have misperceptions about the price level.

The price level will rise in the short run due to the investment in more equipment and as prices are sticky, people will have misconceptions about the price level thinking that it will remain high which is why supply changes.

Answer from: Quest

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

Answer from: Quest

answer; encouraging the development of innovations by firms attempting to break a monopoly; (creative destruction)

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Suppose firms become very optimistic about future business conditions and invest heavily in new capi...