In the short run,a negative demand shock will
A) decrease the price level but leave real GDP unchanged
B) increase the price level but leave real GDP unchanged
C) decrease both the price level and real GDP
D) increase the price level and decrease real GDP
E) decrease the wage rate

Question

Quizplus · Accepted Answer

A negative demand shock will cause a decrease in the aggregate demand for goods and services, which will lead to a decrease in both the price level and real GDP in the short run. This is because firms will reduce their production in response to lower demand, which leads to lower levels of output and employment. The decrease in real GDP will also lead to lower levels of income and consumption, which will further reduce demand.

In the Short Run,a Negative Demand Shock Will