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Consider an economy at full employment. If consumers and firms become less optimistic about the future economy then O unemployment will rise O price levels will rise. O output will rise.

If the economy is in an expansionary period, appropriate policies to pursue may include: O business investment incentives that shift the AD curve to the left. a reduction in government spending that shifts the AD curve to the left. O an income tax cut that shifts the AD curve to the right.

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Answer #1

Q1
Answer
Option 1
unemployment will rise
the consumer and producer become less optimistic means the aggregate demand decreases and shifts to the left which increases the unemployment rate
It also decreases the price level and output.

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Q2
Answer
Option 2
a reduction in government spending that shifts the AD curve to the left
The economy is in the expansionary phase so to contract economy required a contractionary fiscal or monetary policy which decreases AD
The incentives increase AD, and also tax cut increases AD.

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