If a demand shock causes the economy to move to a real GDP level that is below its full employment level,then
A) we refer to this as a positive demand shock.
B) the economy will remain at this point in the long run.
C) the AS curve will adjust in the long run until the economy returns to full employment.
D) the AD curve will move back to its original position in the long run.
E) the unemployment rate will decline.

Question

Quizplus · Accepted Answer

When the economy is below its full employment level due to a demand shock, there will be a surplus of goods, leading to price reductions and a shift of the AS curve to the left. In the long run, this will cause firms to contract and reduce prices and wages, leading to a movement along the AD curve until the economy returns to full employment. Therefore, the correct answer is C.

If a Demand Shock Causes the Economy to Move to a Real