A decrease in the aggregate demand curve along the LRAS curve, all other things unchanged, will generate ____ in potential real GDP and ____ in the price level.
A) an increase; no change
B) a decrease; no change
C) no change; an increase
D) no change; a decrease

Question

Quizplus · Accepted Answer

A decrease in aggregate demand along the LRAS curve will not change potential real GDP, as it is determined by factors like technology and resources, not demand. However, it will lead to a decrease in the price level, as the economy moves to a lower point on the aggregate demand curve.

A Decrease in the Aggregate Demand Curve Along the LRAS