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:

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