How will an unanticipated decrease in aggregate demand influence equilibrium output in the goods and services market?
A) Output will increase, and the general level of prices will fall.
B) Output will increase, and the general level of prices will rise.
C) Output will decrease, and the general level of prices will rise.
D) Output will decrease, and the general level of prices will fall.

Question

Quizplus · Accepted Answer

The decrease in aggregate demand will lead to a decrease in output, as there will be less demand for goods and services. This decrease in output may also lead to a decrease in prices, as firms try to get rid of excess inventory. Therefore, the general level of prices will fall.

How Will an Unanticipated Decrease in Aggregate Demand Influence Equilibrium