In the short-run,any fall in EP /P,regardless of its causes,will cause
A)an upward shift in the aggregate demand function and an expansion of output.
B)an upward shift in the aggregate demand function and a reduction in output.
C)a downward shift in the aggregate demand function and an expansion of output.
D)an downward shift in the aggregate demand function and a reduction in output.
E)an upward shift in the aggregate demand function but leaves output intact.

Question

In the short-run,any fall in EP  /P,regardless of its causes,will cause
A)an upward shift in the aggregate demand function and an expansion of output. 
B)an upward shift in the aggregate demand function and a reduction in output. 
C)a downward shift in the aggregate demand function and an expansion of output. 
D)an downward shift in the aggregate demand function and a reduction in output. 
E)an upward shift in the aggregate demand function but leaves output intact.

Quizplus · Accepted Answer

A fall in EP/P indicates a lower price level, which in turn reduces the demand for goods and services, lowering the aggregate demand. This leads to a downward shift in the aggregate demand function and a reduction in output in the short run as businesses produce less to meet the reduced demand.

In the Short-Run,any Fall in EP /P,regardless of Its