The hypothesis that large negative shifts in aggregate demand reduce the full-employment level of output is known as
A)the real balance effect.
B)the perverse employment syndrome.
C)the real business cycle effect.
D)hysteresis.

Question

Quizplus · Accepted Answer

Hysteresis in economics refers to the phenomenon where a temporary negative shock to aggregate demand can have long-lasting effects on the full-employment level of output. This is because such shocks can lead to increased unemployment, which over time can erode workers' skills and discourage job seeking, thereby reducing the economy's potential output even after the initial shock has passed.

The Hypothesis That Large Negative Shifts in Aggregate Demand Reduce