Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the IMMEDIATE impact of a decrease in aggregate demand?
A)All prices adjust, and the economy returns to long-run potential.
B)There is a slow fall in prices as the short-run aggregate supply begins to have a positive slope, and the initial decline in output will moderate.
C)There is a sharp fall in prices as business hurriedly lower prices to try to boost sales.
D)There is a recession as output falls sharply, and prices will not have had time to adjust.

Question

Quizplus · Accepted Answer

In the short run, a decrease in aggregate demand will lead to a decrease in output and an increase in unemployment as businesses cut back on production. Prices may not adjust immediately, leading to a period of deflation. The economy will experience a recession as it adjusts to the new level of demand. In the long run, as prices adjust, the economy will return to its potential output level.

Given Your Knowledge of How Aggregate Supply Changes from the Very