Question

Suppose that stock market investors expect a booming economy and a higher overall price for stocks over the next year.

Indicate the changes in the stock market by shifting the demand and/or supply curves.

Answer 1

Answer: There will be a shift in the demand curve to the right.

Step-by-step explanation:

A booming economy is a peak phase in the business cycle when there is rapid economic expansion which results into higher GDP, higher inflation rate, lower unemployment and rising asset prices.

When investors in the stock market expects a booming economy and an increase in the prices of stocks, the demand curve will shift outwards that is, the demand curve will shift to the right. This means that investors will buy more stocks because they are expecting a price increase.

This is graphically shown below