Question 6

The aggregate demand curve will shift to the right.

When consumers and businesses become more optimistic about the future direction of the economy, they are likely to increase their spending and investment. This increase in expenditure leads to a rightward shift in the aggregate demand curve, reflecting higher demand for goods and services.

A) The aggregate demand curve will shift to the left

This option is incorrect because an increase in optimism typically results in greater spending and investment, which would not lead to a decrease in aggregate demand. A leftward shift would indicate a decline in demand, contrary to the effects of increased consumer and business confidence.

B) The long-run aggregate supply curve will shift to the right

While optimism can lead to increased investment in the long run, which may eventually shift the long-run aggregate supply curve right, this option does not directly address the immediate effect on aggregate demand. The question specifically pertains to the short-term effects on demand, making this option less relevant.

C) The aggregate demand curve will shift to the right

This option accurately reflects the situation where increased optimism among consumers and businesses leads to higher spending and investment. As a result, aggregate demand increases, causing the demand curve to shift right, which is the expected outcome in this context.

D) The short-run aggregate supply will shift to the left

This option is incorrect as it suggests a decrease in supply due to factors such as increased production costs or reduced output, which is not directly related to consumer and business optimism. Instead, optimism typically influences demand rather than causing a leftward shift in supply.

Conclusion

The correct answer is C, as increased optimism among consumers and businesses directly translates to higher levels of spending and investment, resulting in a rightward shift of the aggregate demand curve. All other options either misinterpret the effect of optimism on demand or incorrectly describe the dynamics of supply in this scenario.