During the recession of 2001, the leftward shifts in aggregate demand and aggregate supply that occurred at that time necessarily reduced
A) real GDP only.
B) the price level only.
C) real GDP and the price level.
D) potential output.

Question

Quizplus · Accepted Answer

During a recession, a leftward shift in aggregate demand typically reduces real GDP as output decreases. The price level may not necessarily decrease if aggregate supply also shifts leftward, as both shifts can offset each other's effects on the price level. Potential output is not affected by short-term shifts in aggregate demand or supply.

During the Recession of 2001, the Leftward Shifts in Aggregate