Question

Please choose one answer for each of the following four questions, making sure to note which segment of the AS curve is being addressed in each scenario (as specified in bold print, and underlined). Assume that all AD curve shifts happen entirely within the range of AS as noted. For example, if AD increases in the immediate short run (range 1), AD is increasing in that range only, and is not moving into the short run (range 2). Assume that for all AS curve shifts, we're only considering scenarios where AD intersects AS in the short run (range 2). Submit your answers by typing the four letters, in order, corresponding to your answers to the four questions asked for this scenario. For example, your answer could be: B C A C. Each of the following four questions is worth .5 points. AS in the Long Run (Range 3 of AS): Scenario: There is an increase in U.S. consumer confidence

Answer 1

In range 3 of AS curve, the AS curve is vertical at potential GDP level.

When consumer confidence increases, consumption demand rises, increasing aggregate demand. The AD curve shifts rightward, intersecting the vertical AS curve at a higher price level but at same level of real GDP (= potential GDP). So,

Price level is higher but real GDP (output) remains the same.

NOTE: Since the answer options are not provided, the answer option cannot be selected.