Which of the following will cause a positive demand shock?

Question

A. A rising stock market increases the wealth of consumers.
B. The government passes a bill to decrease military spending.
C. Foreign consumers decrease their demand for US goods and services (exports).
D. A stock market crash decreases the wealth of businesses

Answer 1

A positive demand shock occurs when there is an increase in demand for goods and services in the economy, leading to higher output and price levels. Among the options provided, the correct answer is:

A. A rising stock market increases the wealth of consumers.

This option indicates that consumers feel wealthier as their investments increase in value, leading them to spend more, which boosts overall demand in the economy.

The other options would either lead to a negative impact on demand (B, C, and D) or not represent the increase in demand needed for a positive demand shock.