A lower price level combined with a decrease in real GDP occurs when the
A) short-run aggregate supply curve shifts rightward.
B) aggregate demand curve shifts rightward.
C) short-run aggregate supply curve shifts leftward.
D) aggregate demand curve shifts leftward.

Question

Quizplus · Accepted Answer

A decrease in real GDP and a lower price level are consistent with a leftward shift of the aggregate demand curve. This shift reflects a decrease in overall demand for goods and services in the economy, which reduces the level of output and puts downward pressure on prices. A rightward shift of the short-run aggregate supply curve would result in an increase in output, which is not consistent with a decrease in real GDP.

A Lower Price Level Combined with a Decrease in Real