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 Pessimism. In the long run, the change in price expectations created by pessimism shifts a. short-run aggregate supply left. b. short-run aggregate supply right. c. long-run aggregate supply left. d. long-run aggregate supply right.

Answer 1

a. short-run aggregate supply left.

Step-by-step explanation:

Aggregate Supply is the total quantity of goods & services, all the sellers in economy are planning to sell, in an economy during a period of time. Short Run Aggregate Supply is upward sloping, as supply is directly related to price level.

If there is future pessimism in economy; due to corporate scandal, international tensions, and loss of confidence in policymakers. Then, producers will be apprehensive about their products sale, will also feel price vulnerable. This would imply that the short run aggregate supply would decrease, the SRAS curve would shift leftwards.