Question

Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will:________

Answer 1

Answer:

the rise in aggregate demand will cause lower unemployment.

Explanation:

the business confidence has risen this will increase investment and thus IS curve will shift out increasing the level of outputs in the economy, this will lead to rise in aggregate demand and thus output and price level in the equilibrium will increase.

so as output increases jobs will be created and unemployment will be reduce.

Therefore, the rise in aggregate demand will cause lower unemployment.