A positive demand shock will result from:

Question

BlackTom AI · Accepted Answer

consider the question about what generates a positive demand shock, which is a sudden increase in overall demand for goods and services in the economy.
Option 1: 'a move by the Federal Reserve to lower the interest rate.' This lowers borrowing costs, encourages investment and consumption financed by credit, and shifts the aggregate demand curve to the right, producing a positive demand shock.
Option 2: 'an increase in potential GDP.' An increase in potential GDP reflects long-run productive capacity, not a sudden change in aggregate demand; it affects the long-run supply side and potential output rather than a demand shock.
Option 3: 'consumers and firms becoming more pessimistic.' When optimism declines, spending and investment typically fall, causing a decrease in aggregate demand rather than a positive demand shock; this would tend to shift demand leftward.
Option 4: 'a sudden increase in nominal wages.' Higher nominal wages can boost consumer spending in the short term, but if they lead to higher costs and inflation expectations, the net effect on demand is ambiguous and often not the classic trigger of a positive demand shock; in some contexts, it may reduce real purchasing power or provoke a supply-side response rather than a pure demand driver.

A positive demand shock will result from:

View Explanation

Log in for full answers

Similar Questions

In a competitive market, what typically happens when there is a demand shock?

There is a temporary demand shock . In the short run, immediately following this shock, output and inflation are given by:

Real Estate Boom is an example of

Great depression was an example of

Suppose the real interest rate is above the neutral real rate of interest but the economy is in an expansion. Which of the following options is consistent with these observations?

In a consumer society, many adults channel creativity into buying things

Economic stress and unpredictable times have resulted in a booming industry for self-help products

People born without creativity never can develop it

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler