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Consider a large increase in consumer confidence
Consider a large increase in consumer confidence. In the Keynesian AS/AD model discussed in class, this would cause: output and price remain constant. output to increase while price remains fixed. output to decrease while price remains constant. O output to increase and price to decrease. output and price to decrease. output and price to increase. output to decrease and price to increase
Expert Solution
The correct answer is -Output and price both increase. The increase in consumer confidence mean more consumption and more demand. if people like something they more and vice versa,. so a high consumer confidence means people want to buy more. They spend more and save less. this leads to increase in investment. The more buying and consumption increases aggregate demand and more investment leads to increased supply. the high demand causes a demand pull inflation and prices also increase along with output.
output and prices do not remain constant as economic activity increases as people buy more and spend more due to high consumer confidence.
The out put increases and price remain constant - false as high consumer confidence causes a demand pull inflation and prices also increase along with output.
The out put decreases and price remain constant - false as high consumer confidence causes high demand so investment increases and so output increases and high consumption causes demand pull inflation and prices also increase along with output
The out put decreases and price increase - false - as high consumer confidence causes high demand so investment increases and so output increases
.The out put increases and price decrease - false - as high consumer confidence causes high demand so investment increases and so output increases and it causes a demand pull inflation so prices also increase.
The out put decreases and price decrease - false - as high consumer confidence causes high demand so investment increases and so output increases and it causes a demand pull inflation so prices also increase
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