If the economy experiences simultaneous negative aggregate demand and aggregate supply shocks,the new equilibrium price level ________ and the new equilibrium level of aggregate output ________.
A) will he higher; will be lower
B) will he lower; will be lower
C) may be higher, lower, or not change; will be lower
D) will be higher; may be higher, lower, or not change

Question

Quizplus · Accepted Answer

Negative shocks to both aggregate demand and aggregate supply typically result in a lower level of aggregate output due to decreased production and demand. However, the effect on the price level can vary depending on the relative magnitudes of the shocks to demand and supply. If the supply shock is larger, prices may rise (due to scarcity), if the demand shock is larger, prices may fall (due to reduced demand), or the effects may offset each other, leaving prices relatively unchanged.

If the Economy Experiences Simultaneous Negative Aggregate Demand and Aggregate