If ________ equilibrium output ________, the price level decreases.
A) potential; is equal to actual aggregate output
B) potential; is below actual aggregate output
C) actual; is below potential aggregate output
D) actual; exceeds potential aggregate output

Question

Quizplus · Accepted Answer

If actual equilibrium output is below potential aggregate output, it signals a recessionary gap, meaning that there is a lower level of demand for goods and services than what the economy is capable of producing. This results in a decrease in overall price levels as businesses are forced to lower their prices in order to sell their goods and services.

If ________ Equilibrium Output ________, the Price Level Decreases

If Equilibrium Output , the Price Level Decreases