Student workpoint 14.

3
1. A) Consumer confidence increased
B) Consumer confidence increased
C) Consumer confidence decreased
D) Consumer confidence decreased

2. Durable goods are goods that are not for immediate consumption and able to be
kept for a period of time. Because the consumers’ willingness to buy durable
goods is a determinant of aggregate demand, and a change in the willingness
and ability of consumers’ to buy such goods would shift the AD curve.
Consumers’ willingness to buy durable goods depends on household
indebtedness, and indirectly on interest rates.
3. Consumer confidence increased from 2009 to 2010, and this causes rightward
shift in AD. This is because if people are optimistic about their economic future
then they are likely to spend more, raising demand, hence aggregate demand.
The AD curve shifts to the right
4. Consumer confidence could have risen due to a booming economy, which
encouraged people to take loans or use up savings, leading to a rising AD.
Moreover, after the crisis was over, people who sought work in the informal
economy went to safer options which gave them more job security and therefore
more consumer confidence. An improvement in the labour market contributed to
the rise in consumer confidence as well

Student workpoint 14.5

1. According to the graph, the German business climate was at it’s peak during
January 2008, after which is suffered a gradual, then sudden decrease, till it
reached its lowest in 2009. As business cycles go, however, the index picked
itself up sharply, reaching another peak, and one much higher, in July of 2010.
This graph shows the periodic property of business cycles. Because such a
constant increase, business confidence is currently boosting.
2. Many factors caused such an improvement in business confidence: and
improved capacity utilization of plant and machinery, positive export
opportunities, and improved business climate in the wholesale, retail and
construction sectors due to remarkable exports.
3. A major part of aggregate demand is investment, which is done by businesses.
Hence, business confidence is important to AD, as a change in business
confidence will lead to a shift in the AD curve. Businesses make decisions about
the amount of investment they should make based to a large extent on their
expectations for the future and their confidence in the economic climate. At a
time like this, business confidence is high, hence investment will rise which will
cause AD to rise. There will be a rightward shift in the AD curve.