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Consumer confidence and business confidence both rise. What does this do to the AD curve, and to the new equilibrium output and price level?
AAD shifts left; equilibrium output and price level both fall
BAD shifts right; equilibrium output rises but the price level falls
CAD shifts right; equilibrium output and price level both rise
DAD does not shift; only aggregate supply responds to confidence
Answer & Solution
Correct answer: C. AD shifts right; equilibrium output and price level both rise
1. Higher confidence raises both consumption spending and business investment spending, two components of AD.
2. Since at least one AD component rises, the whole AD curve shifts to the right.
3. A rightward AD shift moves the new equilibrium along the AS curve to a higher output and a higher price level.
4. Option B gets the price-level direction wrong, and option D misidentifies which curve confidence affects.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 10 "The Aggregate Demand/Aggregate Supply Model", section 10.4 | Shifts in Aggregate Demand_
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