Refer to the diagram. The real-business-cycle view of recession would best be described by
A) a decrease of aggregate demand from $A D _ { 1 }$ to $A D _ { 2 }$, followed by a decrease in aggregate supply from $\mathrm { AS } _\mathrm { LR 1} $ to $\mathrm { AS } _\mathrm { LR 2} $.
B) an increase in aggregate demand from $A D _ { 1 }$ to $A D _ { 2 }$, which in turn causes a decrease in aggregate supply from $A S _ { \mathrm { LR } 1 }$ to $A S _ { \mathrm { LR } 2 }$.
C) a decrease in aggregate supply from $\mathrm { AS } _ { \mathrm { LR } 1 }$ to $\mathrm { AS } _\mathrm { LR2 }$, followed by a decrease in aggregate demand from $A D _ { 1 }$ to $A D _ { 2 }$.
D) a decrease in aggregate supply from $\mathrm { AS } _ { \mathrm { LR } 1 }$ to $\mathrm { AS } _ { \mathrm { LR } 2 }$, followed by an increase in aggregate demand from $A D _ { 2 }$ to $A D _ { 1 }$.

Question

Refer to the diagram. The real-business-cycle view of recession would best be described by
A) a decrease of aggregate demand from $A D _ { 1 }$ to $A D _ { 2 }$, followed by a decrease in aggregate supply from $\mathrm { AS } _\mathrm { LR 1} $ to $\mathrm { AS } _\mathrm { LR 2} $. 
B) an increase in aggregate demand from $A D _ { 1 }$ to $A D _ { 2 }$, which in turn causes a decrease in aggregate supply from $A S _ { \mathrm { LR } 1 }$ to $A S _ { \mathrm { LR } 2 }$. 
C) a decrease in aggregate supply from $\mathrm { AS } _ { \mathrm { LR } 1 }$ to $\mathrm { AS } _\mathrm { LR2 }$, followed by a decrease in aggregate demand from $A D _ { 1 }$ to $A D _ { 2 }$. 
D) a decrease in aggregate supply from $\mathrm { AS } _ { \mathrm { LR } 1 }$ to $\mathrm { AS } _ { \mathrm { LR } 2 }$, followed by an increase in aggregate demand from $A D _ { 2 }$ to $A D _ { 1 }$.

Quizplus · Accepted Answer

The real-business-cycle view of a recession emphasizes negative supply shocks that reduce aggregate supply, leading to lower output and higher prices. In the diagram, a decrease in aggregate supply from $\mathrm { AS } _ { \mathrm { LR } 1 }$ to $\mathrm { AS }_\mathrm { LR2 }$ represents this negative supply shock. This is followed by a decrease in aggregate demand from $A D _ { 1 }$ to $A D _ { 2 }$, which exacerbates the decline in output and employment caused by the supply shock. Therefore, C is the correct answer.

Refer to the Diagram AD1A D _ { 1 }AD1​ To AD2A D _ { 2 }AD2​

Refer to the Diagram $A D _ { 1 }$ To $A D _ { 2 }$