In the short run, if aggregate demand decreases,
A)output increases while prices fall.
B)only prices fall.
C)prices rise.
D)both output and the price level fall.

Question

Quizplus · Accepted Answer

If aggregate demand decreases in the short run, both output and the price level fall. This is because in the short run, firms cannot easily adjust their output levels, and so a decrease in demand results in a decrease in output. At the same time, with less demand for goods and services, firms may need to lower their prices in order to find buyers for their products, which also leads to a fall in the price level.

In the Short Run, If Aggregate Demand Decreases