Which of the following will most likely occur in the short run if long-run equilibrium is disturbed by an unanticipated decrease in aggregate demand?
A) a decrease in output and a higher price level
B) an increase in output and a higher price level
C) a decrease in output and a lower price level
D) an increase in output, while prices remain unchanged

Question

Quizplus · Accepted Answer

In the short run, a decrease in aggregate demand will lead to a decrease in output as firms reduce production. This decrease in output will put downward pressure on prices, leading to a lower price level. This situation is known as a recessionary gap.

Which of the Following Will Most Likely Occur in the Short