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For the question below, write an explanation of the short-run effect (including the determinant of AD or AS that is causing the shift, the line that shifts (AD or AS), the direction of the shift (left or right), and the impact on output and price level (increase or decrease) and submit a properly drawn and labeled aggregate demand and aggregate supply graph for the scenario. Make sure your name and assignment number are written on each page of graphs you submit. All text must be written in the text box provided.

The election of a new Congress causes consumer confidence to soar as expectations of future economic growth are solid.

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Answer: Answer below with explanation

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The expectation in the future economic growth will lead to the consumers expecting a higher future income.

Due to the fact that the consumers are expecting a higher future income, this will lead to an increase in their consumption.

Therefore, in such a case, the increase in consumption will lead to an increase in the demand for goods and services, this then leads to an increase in expenditure. This will lead to the aggregate demand shifting to the right.

The short-run effect of the increase in aggregate demand will lead to an increase in the price level and the output level.

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