After a negative demand shock,what are the expected long-run adjustments?
A) Wages rise,price level rises,and output falls back to potential
B) Wages fall,price level rises,and output falls back to potential
C) Wages fall,price level falls,and output increases back to potential
D) Wages fall,price level rises,and output increases back to potential
E) Wages rise,price level falls,and output increases back to potential.

Question

Quizplus · Accepted Answer

In the long run, after a negative demand shock, wages and prices fall due to decreased demand, allowing output to increase back to its potential level as the economy self-corrects.

After a Negative Demand Shock,what Are the Expected Long-Run Adjustments