The correct option which causes a positive demand shock
Answer to Problem 2MCQ
From the available options, the correct option is an increase in wealth.
Explanation of Solution
The demand shock would be positive when it increases the demand suddenly by decreasing the price of goods and it would be negative when it decreases the demand by increasing the price of goods. Therefore, the correct option is increase in wealth which is a positive demand shock as it increases the demand in the market. Whereas, increase in taxes, pessimistic customer expectations, high stock of capital, and government spending do not cause positive demand shock because if there is an increase in tax rate then less quantity will be demanded in economy, and if people prefer to retain stock rather than investing then also there would be reduction in demand of goods.
Therefore, the correct option is a (an increase in wealth).
Introduction: Any unexpected or uncertain event that cause the demand of goods and services in the market which in turn also affect the price of those goods and service is called demand shock.
Chapter 19 Solutions
Krugman's Economics For The Ap® Course
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education