How does an economic contraction that is caused by a shift in aggregate demand remedy itself over time?
A) The expected price level rises, shifting aggregate demand right.
B) The expected price level rises, shifting aggregate demand left.
C) The expected price level falls, shifting aggregate supply right.
D) The expected price level falls, shifting aggregate supply left.

Question

Quizplus · Accepted Answer

An economic contraction caused by a shift in aggregate demand will result in a decrease in both output and prices. As prices fall, the expected price level will also fall, which will cause a shift in aggregate supply to the right. This means that firms will be willing to supply more goods and services at any given price level, which will help to increase output and stabilize the economy over time.

How Does an Economic Contraction That Is Caused by a Shift